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Oil Rises on Improving Economic Data as Brent-WTI Spread Narrows

Jan. 24 (Bloomberg) -- Oil climbed after reports pointed to accelerating global growth and as the spread between West Texas Intermediate crude in the U.S. and London’s Brent narrowed on speculation the Seaway pipeline will soon resume full shipments.

Futures rose as much as 1.5 percent as U.S. jobless benefit claims fell to a five-year low. WTI’s discount to Brent widened yesterday after Enterprise Products Partners LP said capacity was limited on Seaway, cutting shipments from the central U.S. to the Gulf Coast. An Energy Information Administration report showed crude supplies rose last week.

“The solid data for the U.S. and China underlines and confirms the positive economic outlook,” said Mike Wittner, head of oil-market research for the Americas at Societe Generale SA in New York. “The WTI-Brent spread widened a great deal yesterday because of the Seaway news, but is coming in today. There’s a feeling any issues will be temporary.”

Crude oil for March delivery gained 94 cents, or 1 percent, to $96.17 a barrel at 12:56 p.m. on the New York Mercantile Exchange. The contract traded at $96.14 before the release of the inventory report at 11 a.m. in Washington. Volume was 50 percent above the 100-day average.

Brent oil for March settlement increased 56 cents, or 0.5 percent, to $113.36 a barrel on the London-based ICE Futures Europe exchange. Volume was 24 percent above the 100-day average.

The European benchmark contract was at a premium of $17.19 to WTI futures, down from $17.57 yesterday. The gap was $15.16 on Jan. 17, the narrowest in almost six months.

Fewer Applications

Applications for unemployment insurance payments decreased by 5,000 to 330,000 in the week ended Jan. 19, the fewest since the same week in 2008, the Labor Department reported today in Washington. Economists forecast 355,000 claims, according to the median estimate in a Bloomberg survey.

The index of U.S. leading indicators rose in December, showing the economy is poised to keep growing through the first half of this year. The Conference Board’s gauge of the outlook for the next three to six months increased 0.5 percent after the November reading was revised to unchanged from a previously reported decline, the New York-based group said today.

The improving economic data helped send the Dow Jones Industrial Average 0.3 percent higher.

Chinese PMI

China’s manufacturing is expanding bolstering prospects that economic growth will accelerate. The preliminary reading of a Purchasing Managers’ Index was 51.9 in January, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 51.5 final reading for December and the 51.7 median estimate in a Bloomberg survey.

“Jobless claims are down and the Chinese PMI is up,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “Most economies are getting better. Improved economic growth, even if it’s modest, is positive for crude.”

The U.S. accounted for 21 percent of the world’s oil consumption in 2011, according to BP Plc’s Statistical Review of World Energy. China, the second-biggest crude-consuming country, was responsible for 11 percent of global demand.

The Seaway pipeline, which runs from Cushing, Oklahoma, to Freeport, Texas, on the Gulf Coast, was limited to 175,000 barrels a day at the Jones Creek terminal, according to Enterprise. The capacity of the line was boosted to 400,000 through an expansion completed on Jan. 11.

‘Short-Term Hiccup’

“The Seaway developments are unfortunate, but are being looked at as a short-term hiccup that will be ironed out over time,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We’re already seeing the spread come in a great deal today.”

Crude inventories at Cushing dropped 471,000 barrels to 51.4 million last week, the first decline since November, the Energy Information Administration report showed. Supplies reached a record 51.9 million the previous week.

“Oil isn’t going to be taken out of Cushing at the rate previously expected because of the Seaway news,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “A lot of traders were caught on the wrong side of the WTI-Brent trade yesterday. It looks like yesterday’s move was a bit of an overreaction.”

Nationwide crude stockpiles rose 2.81 million barrels to 363.1 million in the week ended Jan. 18, according to the EIA. A 2.15 million-barrel gain was projected, according to the median of 10 responses in a Bloomberg survey of analysts.

Fuel Supplies

Gasoline inventories declined 1.74 million barrels to 233.3 million. Stockpiles of distillate fuel, a category that includes heating oil and diesel, increased 508,000 barrels to 132.9 million. Refineries operated at 83.6 percent of capacity last week, the lowest level since March, according to the Energy Department’s statistical arm.

The data was released a day later than usual because of the Martin Luther King Jr. Day holiday on Jan. 21.

Electronic trading volume on the Nymex was 452,309 contracts as of 12:58 p.m. It totaled 950,328 contracts yesterday, the highest level since Feb. 7. Open interest was 1.51 million.

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