WTI Crude Rises to 2014 High as Data Show U.S. Economic Growth

Jan 30, 2014 3:21 pm ET

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Jan. 30 (Bloomberg) -- West Texas Intermediate crude rose to the highest level of 2014 after data showed that increased consumer spending boosted the U.S. economy.

Prices advanced 0.9 percent. Gross domestic product of the world’s biggest oil-consuming country grew at a 3.2 percent annualized pace in the fourth quarter, the Commerce Department said. WTI also gained as cold weather pushed heating oil futures to an 11-month high with demand for distillate fuel at the highest level in almost six years.

“It’s a pretty good GDP number,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “U.S. oil demand is picking up. Cold weather traditionally has always been a bullish factor for crude oil.”

WTI for March delivery advanced 87 cents to $98.23 a barrel on the New York Mercantile Exchange, the highest settlement level since Dec. 31. The volume of all futures traded was 20 percent below the 100-day average. WTI is down 0.2 percent this month.

Brent for March settlement increased 10 cents to $107.95 a barrel on the London-based ICE Futures Europe exchange. Trading was 13 percent below the 100-day average. The European benchmark crude was at a premium of $9.72 to WTI, compared with $10.49 yesterday.

U.S. Growth

The GDP gain in the last three months of 2013 matched the median forecast in a Bloomberg survey and followed a 4.1 percent advance the prior three months, Commerce Department data showed.

Growth in the second half of the year was the strongest since the six months ended in March 2012. Consumer spending, which accounts for almost 70 percent of the economy, climbed 3.3 percent.

For all of 2013, the economy expanded 1.9 percent after a 2.8 percent increase in the prior year. The U.S. will use 18.9 million barrels a day of oil this year, according to an estimate from the Energy Information Administration.

“We are looking at a better economy, and that means higher oil prices,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “It’s about the strength of America and better demand. Cold weather is pushing up heating demand, but oil demand could stay even when the weather gets warm.”

The Federal Reserve said yesterday that it will trim its monthly bond buying, known as quantitative easing, by $10 billion to $65 billion. The labor market “showed further improvement,” the Federal Open Market Committee said in a statement. The U.S. unemployment rate declined to 6.7 percent in December, a five-year low.

Equities Increase

U.S. stocks rallied, with the Standard & Poor’s 500 Index climbing as much as 1.4 percent as company earnings beat estimates.

“Crude is moving with the equities,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “There is a pickup in distillate demand with the cold weather.”

The Fed started tapering its $85 billion stimulus program in December. It will reduce bond buying at each subsequent meeting and end the program no later than December 2014, according to a Bloomberg survey on Jan. 10.

“The Fed’s tapering of its QE program is poised to continue, but growth is also poised to remain modestly positive,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant, in a note to clients. “We expect a modest rebound in equities and commodities.”

Distillate Demand

Distillate consumption surged 20 percent last week to 4.52 million barrels a day, the highest level since February 2008, the EIA, the Energy Department’s statistical arm, said yesterday. It was the third gain in a row. Inventories of distillates dropped for a third consecutive week.

Ultra low sulfur diesel, a proxy for heating oil, advanced 3.54 cents, or 1.1 percent, to $3.217 a gallon on the Nymex, the highest settlement since Feb. 14.

January is on track to be the coldest month of the century in the lower 48 states, according to Commodity Weather Group LLC. About 25 percent of households in the U.S. Northeast use heating oil to warm their houses, according to the EIA.

Total petroleum consumption climbed for a third week to 20 million barrels a day last week, the most since Dec. 20, the EIA said.

Implied volatility for at-the-money WTI options expiring in March was 19 percent versus 20.2 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 358,467 contracts at 2:39 p.m. It totaled 416,634 contracts yesterday, the lowest level of 2014. Open interest was 1.58 million contracts, the least since February 2013.

--Editors: Richard Stubbe, Dan Stets