Oil Fluctuates as U.S. Driving Season Counters Concerns Over U.S. Economy

Date: Monday, May 30, 2011
Author: Ben Sharples, Bloomberg

Oil fluctuated in New York as speculation that fuel demand will increase after the start of the U.S. summer driving season countered concern that the economy of the world’s biggest crude consumer is slowing.

Futures rose as much as 0.2 percent and fell as much as 0.2 percent. The peak U.S. demand period for gasoline starts after today’s Memorial Day holiday and ends on Labor Day in early September. Employers probably hired fewer workers in May and manufacturing cooled, economists said before reports this week.

“The market will start to focus on the drive-time period in the U.S., where there’s the expectation of an increase in demand,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who predicted oil will average $100 this year. “The employment data will be the key this week to really see what’s happening.”

Crude for July delivery was at $100.56 a barrel, down 3 cents, in electronic trading on the New York Mercantile Exchange at 1:48 p.m. Sydney time. The contract gained 36 cents, or 0.4 percent, to $100.59 on May 27, the highest settlement since May 25. The front-month contract climbed 1.1 percent last week and is 36 percent higher the past year.

Brent oil for July settlement was at $114.94 a barrel, down 9 cents, on the London-based ICE Futures Europe exchange. The contract slipped 2 cents to $115.03 on May 27 and rose 2.4 percent over the week.

Gasoline Demand

The European benchmark contract traded at a premium of $14.38 a barrel to U.S. futures on May 27. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb. 21. It averaged 76 cents last year.

Gasoline prices in the U.S. have climbed for six straight sessions and increased 5.3 percent last week, the first weekly gain this month.

Hedge-fund managers and other large speculators increased their net-long position in crude-oil futures in the week ended May 24, according to Commodity Futures Trading Commission data.

Managed-money bets in futures and options combined that prices will rise outnumbered short positions by 225,677 futures, the Washington-based regulator said in its weekly Commitments of Traders report. Net long positions increased by 4,112 contracts, or 1.86 percent, from a week earlier.

Saudi Prince Alwaleed bin Talal said in an interview on CNN yesterday that an oil price of $70 to $80 a barrel is in the best interests of the kingdom because it diminishes the urgency in the U.S. and Europe to develop alternative energy sources.

U.S. Economy

A Labor Department report on June 3 may show payrolls rose 185,000 after a 244,000 gain in April, according to a Bloomberg News survey. Other reports may show manufacturing expanded at the slowest pace in seven months and factory orders fell.

Consumer spending in the U.S. rose 0.4 percent last month, missing economists’ estimates, as food and fuel prices increased, the Commerce Department said May 27.

Brent has advanced 21 percent this year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya, Iran and Syria. Libya’s rebels are unlikely to resume crude production from territory under their control for “some time,” Reuters reported yesterday, citing Ali Tarhouni, the dissidents’ oil and finance minister.

Yemeni security forces set fire to the tents of protesters in Freedom Square in Taiz, while army helicopters in Syria fired on anti-government demonstrators.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net