Industry News

Crude Oil Surges as U.S. Manufacturing Growth Accelerates

Feb. 1 (Bloomberg) -- Crude oil surged as manufacturing in the U.S. increased at the fastest pace since August 2004, signaling that fuel use in the world’s biggest energy-consuming country will gain.

Oil climbed the most in four weeks after the Institute for Supply Management’s factory index advanced to a higher-than- anticipated 58.4. It was up from December’s 54.9, figures from the Tempe, Arizona-based group showed. A separate report showed that European manufacturing gained last month. A weaker dollar also bolstered the appeal of commodities to investors.

“The ISM number was very strong,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “The strength isn’t just here, European manufacturing is also expanding.”

Crude oil for March delivery rose $1.54, or 2.1 percent, to $74.43 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures fell to $72.89 on Jan. 29, the lowest settlement since Dec. 21.

The greenback slipped 0.4 percent versus the euro to $1.3923, from $1.3863 on Jan. 29.

The U.S. manufacturing figure exceeded economists’ median forecast of 55.5, according to 67 projections in a Bloomberg News survey. Readings higher than 50 signal an expansion. Manufacturing accounts for about 12 percent of the economy.

European manufacturing also accelerated more than estimated in January. An index of manufacturing in the 16-nation euro region increased to 52.4 from 51.6 in December, London-based Markit Economics said today.

Bullish Argument

“Manufacturing is growing in Europe, with the exception of Greece, Spain and Ireland,” Armstrong said. “This supports the argument that demand will rise and that the price of oil should be higher.”

Consumer spending in the U.S. rose 0.2 percent in December, the third straight gain, according to the Commerce Department. Incomes climbed 0.4 percent, exceeding expectations.

“Consumer spending is really influential because it accounts for 70 percent of the economy,” said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. “The equity markets, commodities and the Fed are all looking for signs of sustained growth. Increased consumer spending provides some hope.”

Nigeria

Shell’s Nigerian unit said it halted some flow stations in the country’s southern oil region after sabotage caused a pipeline leak. The leak was detected Jan. 30, the same day the Movement for the Emancipation of the Niger Delta, the region’s main militant group, said it was ending an “indefinite cease- fire,” after three months.

“Nigeria has been quiet for six months,” Samples said. “We were looking at Nigeria as a source of new supply that would mitigate increasing demand this year. That view could be out the window now.”

U.S. stocks advanced after Exxon Mobil Corp. earnings exceeded estimates. The Standard & Poor’s 500 Index rose 1.2 percent to 1,086.20, as Exxon added 2.9 percent to $66.27.

Energy prices also increased on forecasts for colder weather. Temperatures in most of the lower 48 states will be below normal from Feb. 6 to Feb. 14, according to the National Weather Service.

Natural gas for March delivery rose 30.2 cents, or 5.9 percent, to $5.433 per million British thermal units in New York. Heating oil for March delivery increased 4.32 cents, or 2.3 percent, to $1.9562 a gallon.

Commodity Drop

Oil lost 8.2 percent in January, the first monthly decline since July and the biggest drop since December 2008. Commodities declined the most in 13 months on concern that the pace of the recovery in global demand may be slowing. The Standard & Poor’s GSCI Index of 24 raw materials, including crude, fell 7.3 percent in January.

Hedge-fund managers and other large speculators reduced net-long positions in New York oil futures in the week ended Jan. 26, U.S. Commodity Futures Trading Commission data show.

Speculative long positions, or bets prices will rise, outnumbered short positions by 99,620 contracts, the Washington- based commission said Jan. 29 in its Commitments of Traders report. Net-long positions fell by 34,761 contracts, or 26 percent, from a week earlier.

The Organization of Petroleum Exporting Countries reduced crude production in January for the first time in five months. Output declined 45,000 barrels a day to an average 28.955 million, according to a Bloomberg News survey of oil companies, producers and analysts.

140 Projects

OPEC members are planning 140 oil projects over the next five years, which will add 12 million barrels a day of capacity, Abdalla El-Badri, the group’s secretary-general, said today in London.

“The current investment is going to be enough to satisfy demand and provide a cushion of spare capacity of 6 million barrels by 2013,” he said at a conference today. The plans do not include Iraq, El-Badri said.

Brent crude oil for March settlement rose $1.64, or 2.3 percent, to $73.10 a barrel on the London-based ICE Futures Europe exchange.

Oil volume in electronic trading on the Nymex was 374,289 contracts as of 2:35 p.m. in New York. Volume totaled 530,099 contracts Jan. 29, 6.2 percent below the average of the past three months. Open interest was 1.32 million contracts.

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net