Oil Rises More Than $4 After Central Banks Act to Spur Growth

Oil Rises More Than $4 After Central Banks Act to Spur Growth


Dec. 12 (Bloomberg) -- Crude oil rose more than $4 a barrel, the biggest gain since January, on speculation a decision by central banks to provide cash to financial institutions will spur economic growth.

The Federal Reserve, European Central Bank and three other central banks moved to end a credit squeeze that's threatened to slow the global economy and reduce energy consumption. U.S. crude-oil supplies fell as fuel use increased last week, an Energy Department report showed.

``The energy markets have been interconnected with the global capital markets for some time now,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``The renewed outlook for energy demand has us back in rally mode; $100 is squarely back on the table and within reach before year end.''

Crude oil for January delivery rose $4.37, or 4.9 percent, to settle at $94.39 a barrel at 3:03 p.m. on the New York Mercantile Exchange, the highest close since Nov. 27. Oil had the biggest one-day gain since Jan. 30. Futures rose to a record $99.29 on Nov. 21.

Brent oil for January settlement rose $4.03, or 4.5 percent, to $94.02 a barrel on London's ICE Futures Europe exchange, the highest close since Nov. 26. Futures touched $94.15, the highest since Nov. 27.

The rise accelerated after a state report showed that Exxon Mobil Corp., the world's largest oil company, had a fire yesterday at its Beaumont, Texas, refinery.

Combination of Factors

``There are a combination of factors moving prices higher,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``Central banks have reached a consensus to spur growth, which should spur demand. The DOE report showed that consumption is strong despite the high prices, this shows there's been no demand destruction.''

Total implied fuel demand in the U.S. averaged 21 million barrels a day in the four weeks ended Dec. 7, up 1.4 percent from a year earlier, according to the department. Gasoline demand averaged 9.3 million barrels a day over the period, up 0.4 percent from a year earlier. The department measures shipments from refineries, pipelines and terminals to calculate demand.

Crude-oil supplies fell 722,000 barrels to 304.5 million barrels last week, the report showed. The drop left inventories 1.1 percent higher than the five-year average for the week. A 750,000 barrel decline was expected, according to the median of responses in a Bloomberg News survey.

Economic Concerns

``There was no eye-catching number today to change anyone's opinion about the market,'' said Rick Mueller, an analyst with Energy Security Analysis Inc. in Tilburg, the Netherlands. ``Concerns about the economy are the primary driver of the market.''

The Fed said in a statement it will make as much as $24 billion available to the European Central Bank and Swiss National Bank to increase the supply of dollars in Europe. The Fed also plans four auctions, including two this month that will add as much as $40 billion, to increase cash in the U.S.

``Central bankers want to make the impression that they are doing something,'' Mueller said. ``The actual effect of this action is limited. There are still a lot of big problems for the economy down the road.''

Goldman Sachs Group Inc., the world's largest securities firm, raised its forecast for crude oil prices next year on concern that investment costs and weaker demand may prompt producers to limit supply. West Texas Intermediate crude oil will average $95 a barrel in 2008, up from a previous forecast of $85, the Goldman report showed.

WTI, which is traded in New York, may rise to as much as $105 a barrel by the end of next year, according to Goldman.

Goldman's Credibility

``Goldman has credibility because they were the first to predict that crude would spike to $100,'' Barakat said. ``A sharp increase in their forecast catches everyone's attention.''

Arjun Murti, a New York-based Goldman Sachs analyst who covers oil producers and refiners, roiled markets in March 2005 with a report saying prices could touch $105 a barrel during a ``super spike'' because demand was stronger than anticipated. Prices might also go as low as $50, Murti said at the time.

Norway said about 24,100 barrels of oil spilled into the North Sea when a tanker was loading during rough weather about 200 miles offshore, in the country's second-largest leak. The spill near the Statfjord A platform operated by StatoilHydro ASA occurred at 12:40 p.m. local time today. Norway is the world's fifth-largest oil exporter.


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