Oil rises on US economic growth

Oil rose for the first time in four days as the US economy expanded more in the third quarter than previously estimated.

Prices advanced as much as 2.5 per cent as gross domestic product grew at a 2.7 per cent annual rate, up from a prior estimate of 2 per cent, figures from the Commerce Department showed. Oil reduced gains after House Speaker John Boehner said "no substantive progress" has been made in talks to avert more than $US600 billion in US spending cuts and tax increases, known as the fiscal cliff.

"There is at least a short-term sense of optimism for the economy," said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. "Stronger economic growth typically drives oil prices up."

Crude for January delivery climbed $US1.43, or 1.7 per cent, to $US87.92 a barrel at 12:50 p.m. on the New York Mercantile Exchange after climbing to $US88.69. Prices are up 1.9 per cent this month.

Brent for January settlement rose $US1.10, or 1 per cent, to $US110.61 a barrel on the London-based ICE Futures Europe exchange.

The US economy expanded as a narrower trade deficit and gains in inventory overshadowed a smaller increase in consumer spending. The median forecast of 82 economists surveyed by Bloomberg called for 2.8 per cent growth in third-quarter GDP, the value of all goods and services produced. The economy grew 1.3 per cent in the second quarter.


GDP Growth

"The revised GDP number is better than the earlier estimate and it's helpful for the market," said Bill Baruch, a senior market strategist at in Chicago.

Oil also rose after other reports showed fewer Americans filed first-time claims for unemployment insurance payments last week and Americans signed more contracts in October to purchase previously owned homes.

Applications for jobless benefits decreased by 23,000 to 393,000 in the week ended Nov. 24, according to the Labor Department.

The index of pending home resales climbed 5.2 per cent in October, exceeding the highest estimate in a Bloomberg survey of economists, figures from the National Association of Realtors showed.

"Some of the positive economic sentiments are boosting the market," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. "The GDP revision is positive. The market is still headline-driven."

The US, the world's biggest oil consumer, used 18.8 million barrels a day in 2011, or 21 per cent of the global total, according to BP Plc's Statistical Review of World Energy.

Budget Talks

Boehner said at a press conference in Washington that he is "disappointed in where we are" in the budget talks and he'll do "everything I can" to avoid the fiscal cliff.

Republicans and Democrats disagree about how to reduce future deficits and how quickly to do so, and those divides have stalled negotiations.

President Barack Obama, a Democrat, wants to lean more heavily on tax increases for top earners and less on structural changes to Medicare and Medicaid benefits. Boehner, a Republican, has expressed openness to higher revenue if accompanied by an overhaul of the tax code and significant reductions in future spending on entitlement programs.

Fiscal Cliff

Three out of four global investors expect a short-term agreement to avert the budget crisis. Only 6 per cent of them anticipate a political impasse that would send the US economy over the fiscal cliff and into a recession, according to the Bloomberg Global Poll conducted on Nov. 27. The automatic spending cuts and tax increases are set to start Jan. 1.

"The enthusiasm itself can lift the prospect for oil," said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $US20 billion in companies' annual energy spending.

The Bloomberg poll also showed two-thirds of the investors described the global economy as either stable or improving. That's the most since May 2011 and up from just over half in September.

Most ministers and officials in the Organization of Petroleum Exporting Countries who have commented publicly say the oil market is balanced, signaling little desire to alter output targets when they meet next month in Vienna.

The market is adequately supplied, Angola's national representative to OPEC, Luis Neves, said in an interview in Cape Town on Nov. 27. Ecuador doesn't see any need to change current production levels at the Vienna meeting, Non-Renewable Natural Resources Minister Wilson Pastor told reporters yesterday in Quito, the Ecuadoran capital.

"We have more than ample supplies for oil," McGillian said.