Crude oil rose from a two-week low yesterday as manufacturing expanded in the US and China in October, signalling energy demand is increasing in the world’s two biggest oil-consuming countries. Oil gained as the Institute for Supply Management said US manufacturing grew at the fastest pace in more than three years. Chinese manufacturing climbed to the highest level in 18 months, according to a purchasing managers’ index from HSBC Holdings Plc and a government-backed index issued yesterday. “It’s a great indication that the industrial component of these economies, which is the energy-intensive component, is doing better than it was,” said Brad Samples, a commodity analyst for Summit Energy Inc in Louisville, Kentucky.

“As opposed to the trend last year when it was falling, now it’s rising.”
Crude oil for December delivery climbed $1.12, or 1.5 per cent, to $78.12 a barrel at the 2.30 pm close of floor trading on the New York Mercantile Exchange. Earlier, it touched $78.66 a barrel. Crude has risen 75 per cent this year. Futures lost 4.4 per cent last week, the first pullback in a month, after US crude oil and gasoline stockpiles rose, equities declined and the dollar’s rebound reduced the investment appeal of commodities.

Prices dropped 3.6 per cent on October 30 after a report showed US consumer spending in September fell for the first time in five months. Reports on US home sales and construction also topped projections, in the latest signs that the economy is improving. The number of contracts to buy previously owned homes in the US rose in September for an eighth straight month as Americans rushed to meet a deadline for a home-buyer credit, according to a report from the National Association of Realtors in Washington. Construction spending climbed the most since September 2008.

Equities steady
US equities fluctuated, erasing earlier gains, as a Federal Reserve official said the banking system is still “far from robust.” The comment by Jon Greenlee, associate director of the Fed division that regulates banks, triggered a slide in financials that wiped out an earlier rally from the economic reports. The Standard & Poor’s 500 lost 0.2 per cent to 1,033.75 at 2.18 pm in New York. The Dow Jones Industrial Average fell 6.88 points to 9,705.85. The dollar was down 0.2 per cent at $1.4743 per euro, compared with $1.4719 on October 30. A weaker dollar prompts investors to buy commodities as an inflation hedge. According to a Bloomberg survey, output from the Organisation of Petroleum Exporting Countries expanded to its highest level in ten months.

“We do think there will be more OPEC oil in the market as OPEC tries to keep oil below $80 a barrel,” said Phil Flynn, vice president of research at PFGBest in Chicago. The OPEC estimate is acting as a counterweight to the bullish economic news, he said. OPEC output averaged 28.76 million barrels a day in October, up 80,000 barrels from September, according to the Bloomberg survey of oil companies, producers and analysts. The entire gain came from the OPEC members with quotas, all except Iraq. The 11 countries pumped 26.31 million barrels a day, 1.465 million barrels above their target. Iraqi output was unchanged.

“It doesn’t help OPEC’s cause if, as reports indicate, they decide to increase production at a time when demand is still not very robust,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “It may be some time before there’s another test of $80.” Hedge-fund managers and other large speculators increased their bets on rising oil prices to a 19-month high last week, according to US Commodity Futures Trading Commission data. Speculative net-long positions, the difference between orders to buy and sell the commodity, climbed 47 percent to 109,619 contracts in the week ended Oct. 27, the commission said Oct. 30. That’s the highest since March 14, 2008.