Crude oil rose the most in two weeks, following equities higher, on speculation a bank-rescue plan from President Barack Obama will boost financial companies.
Oil climbed as much as 3.7% as stocks rallied on the new president’s plans to complete an assistance program that can be paired with the $US825 billion stimulus package. March futures also advanced as traders narrowed the differential to later contracts amid rising inventories.
“There’s been a positive correlation between energy and equities, and this appears to be giving the oil market some support,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis.
Crude oil for March delivery rose $US1.96, or 4.8%, to $US42.80 a barrel on the New York Mercantile Exchange. Prices have fallen 4% this year, and are down 52% from a year ago.
Obama became the 44th US president yesterday, inheriting the most severe economic crisis since Franklin D. Roosevelt was sworn in 76 years ago.
The Dow Jones Industrial Average increased 113.26 points, or 1.4%, to 8,062.35. The Standard & Poor’s 500 Index rose 12.84 points, or 1.6%, to 818.06.
“The strength in the S&P is causing the front oil contracts to rise, and that’s causing the spread to come in,” said Addison Armstrong, director of market research for Tradition Energy in Stamford, Connecticut.
The price for oil for delivery in April is $US2.09 higher than for March, down from a $US4.45 premium on Jan. 16. December futures are up $US10.52 from the front month, versus $US15.04 at the end of last week. This structure, in which the subsequent month’s price is higher than the one before it, is known as contango.
Cushing, Oklahoma
The spread has encouraged companies to increase stockpiles at Cushing, Oklahoma, where West Texas Intermediate, the grade traded on the Nymex, is stored. Supplies at the hub climbed 2.5% to 33 million barrels in the week ended Jan. 9. It was the highest level since at least April 2004, when the department began keeping records for the location.
“There’s some question to how much capacity is really available at Cushing,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “The front month WTI contract is trading at such a discount that we should soon start seeing refiners start to use it rather than leaving it in storage.”
Rising Supplies
Prices fell earlier on speculation that the Energy Department may say US crude-oil inventories rose last week when it releases its weekly supply report at 11 a.m. tomorrow in Washington, a day later than usual because of the Martin Luther King Jr. holiday on Jan. 19.
The report may show that stockpiles rose 1.5 million barrels in the week ended Jan. 16, according to the median of 13 analyst estimates in a Bloomberg News survey.
“There’s a lot of oil floating around,” said Justin Fohsz, a broker at Starsupply Petroleum, a division of GFI Group Inc. in Englewood, New Jersey. “There’s an overhang, which isn’t going away anytime soon.”
The Organization of Petroleum Exporting Countries announced a record 9% cut in supply targets at a Dec. 17 meeting to reverse the plunge in oil prices, which have tumbled 72% since reaching a record $US147.27 a barrel in New York on July 11.
OPEC won’t meet before its next scheduled summit on March 15, Algerian Oil Minister Chakib Khelil said. Khelil, who held the group’s rotating presidency last year, said oil prices would likely be stable until the third quarter when crude is expected to rebound. OPEC may announce an additional cut in March if prices slump further, he said.
Brent crude oil for March settlement rose 92 cents, or 2.1%, to $US44.54 a barrel on London’s ICE Futures Europe exchange.
