Oil rose for the first time in three days as clashes in Syria raised tension in the Middle East and a report indicated China’s manufacturing may contract at a slower pace in July.
Futures gained 0.4 percent as the unrest in Syria has forced tens of thousands of people to seek shelter across the borders in Turkey, Iraq and Lebanon. The preliminary reading of a Chinese purchasing managers’ index showed it would be at the highest level since February. Oil slumped 4 percent yesterday on Europe’s debt crisis.
“Geopolitical risk is outweighing the situation in Europe and ultimately it’s going to spike the price,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “The Chinese manufacturing headline is pushing oil to the up side. The market was a little bit oversold yesterday.”
Crude oil for September delivery rose 36 cents to settle at $88.50 a barrel on the New York Mercantile Exchange. Prices are down 10 percent this year.
Prices pared gains after the industry-funded American Petroleum Institute reported oil inventories gained 1.35 million barrels last week to 381.3 million. The September contract rose 7 cents to $88.21 at 4:34 p.m. in electronic trading. It was $88.70 before the report was released at 4:30 p.m.
Brent oil for September increased 16 cents to $103.42 a barrel on the London-based ICE Futures Europe exchange.
Israeli army chief Lieutenant-General Benny Gantz said that Syria is maintaining control of its chemical weapons stockpile and has boosted security around it, Army Radio reported today, citing comments the army chief made to a parliamentary panel in Jerusalem.
The Syrian Foreign Ministry said the nation’s chemical weapons are secure and won’t be used against insurgents.
“All the stocks of these weapons that the Syrian Arab Republic possesses are monitored and guarded by the Syrian Army,” Jihad Makdissi, a ministry spokesman, said at a Damascus press conference shown on state-run television. “These weapons are meant to be used only and strictly in the event of external aggression” against Syria.
“You have to be bullish in the longer term because the violence in Syria could easily spread throughout the Middle East,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Things look as bad as when Iraq was preparing to invade Kuwait.”
Oil in New York surged to a then-record $41.15 a barrel in October 1990 after Iraq invaded Kuwait, cutting exports from the two nations. Futures then plunged by a third on Jan. 17, 1991, after U.S.-led forces began their air attack on Iraq, reducing Iraq’s threat to neighboring producers.
The preliminary reading of the Chinese index, called the Flash PMI, was 49.5 for July, compared with a final figure of 48.2 for June, figures from HSBC Holdings Plc and Markit Economics showed. The index is based on 85 percent to 90 percent of responses to a survey of more than 420 companies, according to HSBC.
“China’s manufacturing number is better than a month ago,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “With the big selloff yesterday, it wouldn’t surprise me to see higher prices.”
U.S. crude inventories probably fell for a fifth week, the longest stretch in a year, as refineries reduced purchases before fall maintenance programs, a Bloomberg survey showed.
Stockpiles dropped 1 million barrels to 376.4 million in the seven days ended July 20, according to the median of 11 analyst estimates before an Energy Department report tomorrow. A decrease of that size would leave supplies at the lowest level since April.
Earlier, oil fell a day after Moody’s Investors Service cut the outlooks on the Aaa credit ratings of Germany, the Netherlands and Luxembourg, citing the “rising uncertainty” about Europe.
Moody’s cited the risk that Greece will leave the 17-nation euro currency and the “increasing likelihood” of collective support for European countries such as Spain and Italy as reasons for the outlook change, according to a statement.
The Standard & Poor’s 500 Index fell for a third day, dropping 0.9 percent. The euro declined as much as 0.6 percent against the dollar. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.
“Oil is really driven by equities and the dollar,” Zahir said.
Electronic trading volume on the Nymex was 461,630 contracts as of 4:34 p.m. in New York. Volume totaled 448,029 contracts yesterday, 19 percent below the three-month average. Open interest was 1.35 million.