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Thu 6 Jan 2011 01:27 PM

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Oil trades above $90 as signs of recovery spurs demand for fuels

Crude stockpiles fall more than analysts estimated, as oil expected to top $100 a barrel

Oil trades above $90 as signs of recovery spurs demand for fuels
RECOVERY SIGNS: Oil traded above $90 a barrel as signs indicate that the US recovery is gaining pace

Oil traded above $90 a barrel for a second day in New York on signs the US recovery is gaining strength and absorbing surplus crude inventories.

Futures advanced 1 percent yesterday after crude stockpiles fell more than analysts estimated, while reports showed US service industries expanded and companies added workers in December. BlackRock’s Daniel Rice, who beat 99.9 percent of US stock fund managers over the past decade, said oil prices will probably top $100 this year.

“The market is still see sawing,” said Victor Shum, a senior principal at consultants Purvin & Gertz in Singapore. “Overnight, the jobs data and service sector data was all very positive. If the dollar strengthens we could see some liquidation of positions.”

The February contract was at $90.33 a barrel, up 3 cents, in electronic trading on the New York Mercantile Exchange at 8:34 am London time. Futures earlier gained as much as 41 cents to $90.71. Yesterday, it rose 92 cents to $90.30. Prices are 8.6 percent higher than a year earlier. Brent crude oil for February settlement was at $95.44 a barrel, down 6 cents, on the London based ICE Futures Europe exchange. The contract rose 2.1 percent to $95.50 yesterday.

The Institute for Supply Management’s non factory index, which covers about 90 percent of the economy, rose to 57.1. A report yesterday from ADP Employer Services showed companies boosted payrolls in December by the most since records began in 2001. Employment jumped by 297,000, almost three times the 100,000 median estimate of economists surveyed.

An Energy Department report yesterday showed crude inventories declined 4.16 million barrels to 335.3 million last week, falling more than double what analysts forecast in a Bloomberg News survey.

US stockpiles of crude have contracted 24.4 million barrels in five weeks. Stockpiles last week were forecast to decrease by 2 million barrels, according to the median of 17 analyst responses in a Bloomberg News survey. Refiners along the Gulf of Mexico Coast reduce stockpiles in December to lower year end tax liabilities.

Gasoline supplies climbed 3.29 million barrels to 218.1 million, the Energy Department said. They were forecast to gain 500,000 barrels, according to the survey.

Inventories of distillate fuel, a category that includes heating oil and diesel, rose 1.15 million barrels to 162.1 million. A 750,000-barrel increase was projected.

West Texas Intermediate oil, the grade deliverable against the New York futures, is trading at a discount of $5.04 a barrel to Brent. The difference was $5.20 yesterday, the most since May 14. The spread widened after the Energy Department said that supplies at Cushing, Oklahoma, the delivery point for the contract, rose 858,000 barrels to 37.5 million, the highest level since Aug. 6.

An expanding global economy is likely to push oil prices above $100 this year, according to BlackRock’s Rice, whose fund returned 18 percent annually in the past 10 years.

“I will be bullish on the stocks for part of the next surge, but I won’t be if oil gets to $120,” the manager of the $1.5bn BlackRock Energy & Resources Fund said.

Crude prices may rise following a report on US non farm payrolls due out tomorrow. The country may have added 150,000 jobs in December, according to a Bloomberg News survey of economists, up from a gain of 39,000 in November.

“If it’s positive, that could shoot futures higher,” said Purvin & Gertz’s Shum.

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