Oil Rises in New York on Spanish Bailout Optimism

Oil advanced in New York after two German lawmakers said the country is open to Spain seeking a precautionary credit line from Europe’s rescue fund.

Futures rose 0.3 percent as officials in Chancellor Angela Merkel’s Christian Democratic coalition indicated an easing of German resistance to a Spanish bailout and Merkel praised Greece’s reform. Crude fell earlier on projections that U.S. supplies climbed last week. Brent oil’s premium to West Texas Intermediate, the U.S. benchmark grade, reached a one-year high.

“Bailouts are good for commodities,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It appears that the Germans are coming around to giving additional help to both Spain and Greece. Any help for those countries will boost the risk-on trade and send oil higher.”

Crude oil for November delivery increased 24 cents to $92.09 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 9. Prices are down 6.8 percent this year.

Brent oil for November settlement dropped 73 cents, or 0.6 percent, to $115.07 a barrel on the London-based ICE Futures Europe exchange. The contract expires today. The December futures slipped 40 cents, or 0.3 percent, to $114.

The European benchmark touched a $24.28 premium to the New York-traded WTI, the widest since Oct. 17, 2011. The settlement spread was $22.98, down from $23.95 at the close of trading yesterday. Brent decreased as exports of North Seas Forties crude in November will increase to 19 cargoes as the restart of the Buzzard oil field in the North Sea was delayed.

Inflated Benchmark

“The Brent market has been inflated by declining North Sea production and hiccups in that production, like the problems with Buzzard,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London. “The price of WTI is also being distorted by the huge increase in U.S. domestic oil production.”

Germany is signaling more willingness to cooperate with its European Union partners on measures to staunch the debt crisis before EU leaders meet in Brussels on Oct. 18-19.

A precautionary credit line for Spain “would be a possible move,” Norbert Barthle, the Christian Democratic Party’s budget spokesman, said today in a text message.

Merkel stepped up her praise of Greek reform efforts today after Finance Minister Wolfgang Schaeuble reaffirmed a commitment to a so-called banking union and one of his deputies said Germany would consider EU proposals to strengthen the monetary union.

Equity Market

Equities and the euro gained on speculation about the credit line for Spain. The Standard & Poor’s 500 Index (SPX) climbed 0.9 percent and the Dow Jones Industrial Average advanced 0.8 percent. The euro climbed as much as 0.9 percent to $1.3061. A stronger euro and weaker U.S. currency bolster the appeal of dollar-denominated raw materials as an investment.

An Energy Department report will show that U.S. crude oil inventories rose 1.5 million barrels last week, according to the median of nine analyst responses in a Bloomberg survey. The department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington.

U.S. crude production increased 1.2 percent to 6.6 million barrels a day in the week ended Oct. 5, the most since May 1995, last week’s report from the department showed.

“The market is struggling to find any kind of clear-cut direction,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Ample supplies in the U.S. are a major headwind.”

Middle East

Brent oil has been inflated by concern that shipments from the Middle East will be disrupted because of Iran’s nuclear program and conflict in Syria. The European Union tightened sanctions on Iran in a bid to persuade Tehran to permit more scrutiny of its nuclear program. The EU also tightened sanctions against the regime of Syria’s President Bashar al-Assad.

Israel’s parliament, the Knesset, passed a law today by a vote of 100-0 that dissolves the government and sets new elections for Jan. 22. Tensions with Iran are also growing in the midst of concern about the nature of the Islamic Republic’s atomic work.

“The Knesset vote is probably reducing some of the geopolitical premium in the price,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The upcoming election reduces the likelihood of an Israeli attack on Iran at least until the vote talks place.”

Electronic trading volume on the Nymex was 444,762 contracts as of 2:41 p.m. Volume totaled 616,178 contracts yesterday, 17 percent above the three-month average. Open interest was 1.58 million.

Full article:

http://www.bloomberg.com/news/print/2012-10-16/oil-fluctuates-in-n-y-u-s-cost-of-living-spain-credit.html

PS.  To and fro goes the market casino in all asset classes.  So what is the reason used for risk off or on today or the next day??  So much volatility, what is an investor to do?  Best to learn about behaviour, emotional investing....learn about your own risk tolerance, trading strategy and market thesis....hopefully ahead of the herd.  As the herd chases up, take some or all profits.  As the herd panics down, buy, selectively and then wait for the herd to chase up again....as the cycle repeats itself forever.

Cheers,

Dave.