Oil Rises on Stimulus Speculation, Iranian Supply

By Moming Zhou - Jul 4, 2012 3:45 AM GMT+0700

Oil surged to a one-month high on speculation that central banks from Europe to China will ease monetary policy to spur growth while sanctions against Iran may curb supply.

Prices gained 4.7 percent as the European Central Bank is forecast to cut interest rates this week. A state-owned newspaper in China said the time is right to increase liquidity in the banking sector. Iran fired several missiles during a three-day military exercise as the country threatened to block tanker traffic in the Strait of Hormuz.

“What you are seeing in the market right now is greater risk appetite as anticipations of further monetary easing grow,” said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy. “The market’s focus is returning back to Iran and the implications of the Iranian embargo in terms of the volume of oil that needs to be replaced.”

Oil for August delivery climbed $3.91 to settle at $87.66 a barrel on the New York Mercantile Exchange, the highest level since May 30. Futures have increased 13 percent since closing at an eight-month low of $77.69 a barrel on June 28. They are 11 percent lower this year.

Prices were little changed after the American Petroleum Institute reported oil inventories fell 3.03 million barrels last week to 382.6 million. The August contract gained 4.6 percent to $87.63 a barrel at 4:45 p.m. in electronic trading on the Nymex. Futures were at $87.57 before the report was released at 4:30 p.m. in Washington.

Closed Tomorrow

The Nymex trading floor will be closed tomorrow for the U.S. Independence Day holiday.

Brent for August settlement gained $3.34, or 3.4 percent, to $100.68 on the London-based ICE Futures Europe exchange, settling above $100 for the first time since June 6.

The European Central Bank and the Bank of England will announce interest-rate decisions on July 5. ECB officials will lower their benchmark rate by 25 basis points to a record low 0.75 percent, according economists surveyed by Bloomberg.

The People’s Bank of China may cut lenders’ reserve requirements to increase liquidity in the banking system, according to a commentary on the front page of today’s China Securities Journal, which is published by the official Xinhua News Agency. The central bank announced a cut to interest rates on June 7, a day after the newspaper published a commentary urging the move.

Chinese Stimulus

“There is a better chance that Europe and China are going to have some monetary stimulus plans and that’s helping oil,” said Phil Streible, a Chicago-based commodities broker at RJO Futures. “If Iran does cut tanker traffic, oil prices will have a big advance. You are seeing some risk-on sentiment.”

A European Union embargo on Iranian oil took full effect on July 1 after exemptions on some contracts and insurance ended. Iran’s crude exports may drop to about 1 million barrels a day, Goldman Sachs said in a report yesterday. The country pumped 3.16 million barrels a day in June, the second biggest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, according to Bloomberg estimates.

“You’ve got saber-rattling by Iran that’s fueling the oil market,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “Did we really think that Iran would go away quietly?”

Iran Sanctions

Iran’s parliament is working on a bill to close the Strait of Hormuz to oil tankers linked to countries applying new EU sanctions, a lawmaker from the national security committee told Jam-e-Jam newspaper yesterday. The waterway is a transit route for a fifth of the world’s crude.

Iran’s Revolutionary Guard Corps “successfully” fired several missiles, including long-range ones, in a military exercise that began yesterday, the official Islamic Republic News Agency said in a report published today.

Oil also increased on expectations that stockpiles decreased last week. Inventories probably dropped 2.3 million barrels last week, according to the median of nine analyst estimates in a Bloomberg survey before a July 5 Energy Department report.

Gasoline supplies increased 1 million barrels last week, according to the survey. Refineries traditionally step up operations with the start of the so-called summer driving season, which runs from Memorial Day at the end of May to Labor Day in early September.

Factory Orders

Prices followed gains in stocks after the Commerce Department reported orders placed with U.S. factories rose in May for the first time in three months, easing concern that manufacturing is faltering.

The 0.7 percent increase in bookings followed a revised 0.7 percent drop in the prior month. The median forecast of economists in a Bloomberg survey called for a rise of 0.1 percent.

Electronic trading volume on the Nymex was 602,651 contracts as of 4:45 p.m. in New York. Volume totaled 542,783 contracts yesterday, 3.9 percent below the three-month average. Open interest was 1.42 million.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net