Oil rises on economic data, cold forecasts

Oil jumped 1 percent to a 26-month high above $92 a barrel on Monday as upbeat European and US manufacturing data and forecasts for cold weather stoked energy demand expectations. Manufacturing in the United States and Europe accelerated in December and growth in China and India slowed to a more sustainable level, helping to fuel a move by investors into riskier assets.
US crude oil for February delivery rose 75 cents to $92.13 a barrel at 1:23 pm EST (1823 GMT), having reached $92.58, its highest price since October 2008. In London, ICE Brent crude for February rose 68 cents to $95.43 a barrel. US heating oil and front-month ICE gas oil futures led the oil futures complex higher, supported by expectations more freezing weather will arrive later in January. US crude oil futures were building on their end-of-year rally that left prices up 15 percent on the year.
Total US crude futures trading volume, thinned by the holiday season, was above 265,000 lots in afternoon trading in New York. The 30-day average was 543,282. "Heating oil strength is on the colder forecasts further out, and on top of that crude is being supported by the strong manufacturing data," said Phil Flynn, analyst at PFGBest Research in Chicago.
Total US heating demand this week was expected to be only 0.5 percent above normal, the US National Weather Service said, and heating oil demand was expected to average 4.3 percent below normal. But looking further out, the NWS' six- to 10-day and eight- to 14-day outlook issued Sunday called for below-normal or much-below-normal readings for the entire nation.
Temperatures in northern Europe also were forecast to be near to below normal in the six- to 10-day outlooks, according to private forecaster DTN Meteorlogix. The fresh batch of encouraging economic data helped lift US equities, pushing all three major indexes up more than 1 percent to start the new year.
US manufacturing grew for a 17th straight month in December, an Institute for Supply Management report showed on Monday. The report showed new orders rose, suggesting momentum for growth even though factory sector employment slipped to a nine-month low. US construction spending rose more than expected in November to touch its highest level in five months, a separate report from the Commerce Department showed.
Prior to the US reports, investors received news that the official Chinese purchasing managers' index edged down to 53.9 in December from November's 55.2, easing fears of more efforts by China's government to cool off its economy. The Markit Eurozone PMI, which records manufacturing activity across the major euro-area economies, rose in December from November, revised higher from a preliminary reading and near April's 46-month high.
US crude futures remained in a stubborn contango, whereby prompt oil is cheaper than barrels for later delivery, a market condition that encourages storage. The spread between front-month February and March crude futures had the premium for March crude as high as $1 intraday on Monday. Traders, however, said there was momentum to move higher as new money was expected to enter the market at the start of the year. Prices could still falter before the next push higher, possibly correcting to $83.85 per barrel, based on a wave pattern and a channel technique, according to Wang Tao, Reuters market analyst for commodities and energy technicals.