Crude oil surged to the highest level in 17 months as growth in American jobs and service industries signaled that the economy is recovering from the worst recession since the 1930s.
Oil climbed 2.1 percent amid optimism that fuel demand will increase with an economic rebound. The U.S. is the world’s largest energy-consuming country. The Standard & Poor’s 500 Index rose to an 18-month high.
“The market is in full embrace of the recovery thesis and is pricing it in accordingly,” said John Kilduff, a partner at Round Earth Capital, a New York-based hedge fund that focuses on food and energy commodities. “It’s enthusiasm that we’re coming out of this recession.”
Crude oil for May delivery increased $1.75 to settle at $86.62 a barrel on the New York Mercantile Exchange, the highest closing price since Oct. 8, 2008. The contract has risen for five consecutive sessions, the longest stretch in six weeks. Crude has climbed 65 percent in the past year.
Oil traded within a range of $68 to $84 a barrel in the six months ended March 31. Prices rose the past two months as improved investor confidence boosted world equity markets.
The S&P 500 gained 0.8 percent to 1,187.44 in New York, also on the jobs report.
U.S. payrolls rose by 162,000 last month, the Labor Department reported April 2, when U.S. financial markets were closed for the Good Friday holiday. The report included 48,000 temporary workers hired by the government to conduct the Census.
Service Industries
U.S. service industries in March also expanded at the fastest pace since May 2006, according to the Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy. The index rose to 55.4 from 53 in the prior month, exceeding the median forecast of 54 in a Bloomberg News survey of economists.
“The recovery is upon us,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. He said a rebound in manufacturing and transportation is spurring demand for diesel fuel, which supports heating oil prices.
Heating oil for May delivery gained 5.08 cents, or 2.3 percent, to $2.2675 a gallon, and gasoline for May delivery increased 2.65 cents, or 1.1 percent, to $2.3502 a gallon. Both contracts are the highest since October 2008.
The Reuters/Jefferies CRB Index of 19 commodities advanced 1.1 percent to 279.51, the highest level in 10 weeks. Natural gas, heating oil and crude were the three top performers in the index today.
Fundamentals
“It’s 2008 redux,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The fundamentals don’t matter until they matter very much.”
Prices surged to a record $147.27 a barrel in July 2008 as the recession worsened and demand waned. They subsequently fell to $32.40 a barrel in December 2008.
U.S. crude oil stockpiles posted nine consecutive weekly increases through March 26, when inventories were at 354.2 million barrels. That’s the highest level since June and 6.5 percent higher than the five-year average for the period, the Energy Department said last week.
Oil supplies probably rose by 1.55 million barrels last week, based on the median estimate of six analysts surveyed by Bloomberg News. A 10th weekly gain would make it the longest stretch of stockpile increases since a period ended in December 2004. All six analysts forecast supplies would rise.
Oil for June delivery cost 51 cents more than for May delivery at the close, the widest premium between the two most actively traded crude futures contracts on the Nymex since Jan. 8. When the spread widens, it becomes more profitable to buy oil and hold it for later sale.
$75 Floor
Prices have established a floor of $75 a barrel, Venezuela’s Oil Minister Rafael Ramirez said April 2 in Caracas. There’s no need for the Organization of Petroleum Exporting Countries to increase production and Venezuela seeks a price band between $80 and $100 a barrel, he said.
OPEC, which pumps about 40 percent of the world’s oil, slashed output in January of last year to prevent a supply glut. The 12-member group left production quotas unchanged when ministers met in Vienna on March 17.
Saudi Aramco, the world’s largest state-owned oil company, raised official selling prices for light crude grades for customers in the U.S. and Asia for May, it said yesterday.
Aramco set the price for its Extra Light crude oil for May loadings for U.S. buyers at a premium of $1.35 a barrel over the Argus Sour Crude Index, 40 cents higher than April. The discount for shipments of light-grade crude to the U.S. narrowed 20 cents to 40 cents a barrel below ASCI.
Hijacked Supertanker
A cargo of Iraqi Basrah Light crude oil bound for the U.S. Gulf Coast was on a supertanker that was hijacked off the coast of Somalia yesterday, the Associated Press reported.Valero Energy Corp., which owns the oil, valued at more than $200 million, said it can replace the cargo before the Samho Dream’s estimated arrival date of May 10.
Brent crude oil for May settlement rose $1.87, or 2.2 percent, to $85.88 a barrel on the London-based ICE Futures Europe exchange, also the highest since October 2008.
Oil volume in electronic trading on the Nymex was 436,408 contracts as of 3:28 p.m. in New York. Volume totaled 570,495 contracts April 1, 4.8 percent below the average of the past three months. Open interest was 1.35 million contracts.