Crude Prices Jump Following Positive Economic Indicators

Consumer confidence and spending are the keys to an economic recovery. Speculators follow economic indicators for oil-consuming countries to determine if oil will be a good bet. Reports showing growth in Japan’s gross domestic product and an uptick in consumer spending in the United States pushed crude oil prices up as much as 1.1 percent.

Growth domestic product in Japan outpaced third quarter forecasts while U.S. retail sales saw the largest increase since March. Analysts believe an increase in fuel demand is likely to follow the increase in production and sales, and that consumers will play a major role in driving the economic recovery. According to Houston-based Oil Outlooks & Opinions LLC president Carl Larry, “The market is moving on sentiment and perception.” Investors will follow the consumer’s lead.

Crude oil rose 54 cents to $85.42 a barrel Monday morning on the New York Mercantile Exchange, and futures climbed as high as 89 cents to reach $85.77. Brent crude oil for December jumped .8 percent on London’s ICE Futures Europe exchange, reaching $87.01 a barrel. January oil was traded more actively and climbed 63 cents to $87.16 a barrel.

The Commerce Department released data in Washington showing a 1.2 percent rise in U.S. retail sales in October. Bloomberg News had previously surveyed 74 economists, and the median projected estimate for retail gain was  0.7 percent. October’s good news followed a 0.7 increase in September, a gain that also exceeded forecasts. Retailers are optimistic that the trend will continue on through the crucial holiday shopping season.

News from Japan, the world’s third largest oil consumer, also gave oil prices a boost. Another Bloomberg News survey of economists had predicted a 2.5 percent increase in Japan’s economy. Tokyo’s Cabinet Office announced an annualized 3.9 percent gain in the economy for the three-month period ending September 30, soundly beating expectations.

This week’s jump in oil prices follows a 2.3 percent drop last week. BNP Paribas Commodity Futures Inc. broker Tom Bentz said, “We fell so hard last week that a bounce-back should be expected.” Prices tumbled last week on speculation that China would bump interest rates. Investors are concerned that an increase in interest rates could slow growth in China, the largest energy consumer in the world.

The increase in crude oil prices this week reflects the influence the consumer has on  market prices. Carl Larry noted, “The headlines of any given day will decide the market’s move.