Crude Oil Advanced two percent as Financial Shares Gain

Crude oil advanced two percent as financial shares gained and the European Central Bank said it will relax some rules on bank collateral. Oil climbed from an eight-month low as U.S. equities rallied.

Crude Oil prices also gained as Gulf of Mexico platforms began evacuations on the growing threat of a tropical storm. Futures fell 5.1 percent this week as manufacturing slumped in the U.S., China and Europe and American supplies rose to a 22-year high.

August oil delivery increased $1.56 to settle at $79.76 a barrel on the New York Mercantile Exchange. Futures touched $77.56, the lowest intraday price since Oct. 5. The price is down 19 percent this year. Brent oil for August settlement gained $1.75, or 2 percent, to end the session at $90.98 a barrel on the London-based ICE Futures Europe exchange. Earlier the contract touched $88.49, the lowest price since Dec. 2, 2010. August Brent contract traded at a 28-cent discount to September. It’s the fifth consecutive day that the front-month contract has been cheaper than the second month, a market structure known as contango. That typically signals an excess of supply.

Equities advanced after none of the financial firms was cut more than Moody’s had forecast. The prospect of downgrades had weighed on banks since Moody’s said Feb. 15 it was reviewing 17 banks with capital-markets operations because of fragile confidence and tighter regulations that pinched revenue.

The Standard & Poor’s 500 Index (SPX) climbed 0.8 percent and the Dow Jones Industrial Average advanced 0.6 percent.

“The oil market is trying to decide whether or not to price in a global recession,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Weak economic numbers have fed those concerns this week.”

Oil tumbled in intraday trading as the Munich-based Ifo institute said its German business climate index, based on a survey of 7,000 executives, dropped to a two-year low.

Prices dropped 4 percent yesterday after the Federal Reserve Bank of Philadelphia’s general economic index showed manufacturing in the Philadelphia region shrank in June. Analysts predicted no change. Factory output also declined in Europe and China.

“After the incredible selloff yesterday, it appears that the market has already priced in the bad news,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “We need more negative headlines to make new lows.”

Energy platforms in the Gulf of Mexico began evacuations as the weather system off the Yucatan Peninsula threatened to grow into a tropical storm. The Miami-based National Hurricane Center said there’s a 70 percent chance the cluster of thunderstorms will organize into a tropical depression or Tropical Storm Debby in the next two days.

The Gulf is home to 29 percent of U.S. oil output, 6.4 percent of gas production and 40 percent of refining capacity.

OPEC’s basket of crudes dropped below $90 a barrel for the first time in more than 17 months. The basket, a weighted average price of the main grades produced by the Organization of Petroleum Exporting Countries, was at $89.48 a barrel yesterday.

The group decided June 14 to retain its group output target of 30 million barrels a day. The 12 member nations pumped about 1.6 million barrels a day more than that limit in May, according to data compiled by Bloomberg.

Saudi Arabia has been trying to lower the price of oil to bolster the global economy as Western nations impose sanctions on Iran. The kingdom pumped 9.9 million barrels of crude a day in May, the highest level since at least January 1989, based on Bloomberg estimates.

“Markets always overshoot,” Wittner said. “Oil, unlike other commodities, has OPEC and Saudi Arabia in particular, which can cut back when needed. The Saudis have accomplished what they aimed to do by reducing prices, increasing inventories and making up for the Iran sanctions that are almost in place.”

European Union sanctions on oil imports from Iran will start on July 1 as agreed by the bloc’s governments and will be implemented without any delay, an EU official said today.

Electronic trading volume on the Nymex was 463,273 contracts as of 3:14 p.m. in New York. Volume totaled 714,879 contracts yesterday, 28 percent above the three-month average. Open interest was 1.43 million.

Oil prices fell Thursday, hitting an eight-month low, as markets continued to react to disappointing economic news across the globe.

The price of oil for August delivery fell to $78.58 a barrel as markets settled, down nearly 4% from Wednesday. This is the first time since October that oil prices hit below $80, what analysts consider a key psychological number.

Signs of a slowdown in manufacturing in China, Europe and the United States delivered the oil market another blow on Thursday.

“Prices have gotten clobbered, and it’s being driven by the deteriorating economic data,” said Matt Smith, a commodity analyst at Summit Energy Services.

A survey of Chinese manufacturers saw a decline in the number of export orders, while the manufacturing index in Europe remained at a three-year low. Domestically, the Philadelphia Federal Reserve reported a 16.6% drop in its regional manufacturing index.

The oil markets also reacted to jobless claims, which analysts said showed little improvement. Prices were also still coming down from disappointment over the Federal Reserve’s decision to hold interest rates steady.