Oil futures settle higher on economic data, US budget optimism

London (Platts)--29Nov2012/453 pm EST/2153 GMT

NYMEX crude and products futures settled higher Thursday on better-than-expected financial data, optimism about US budget negotiations, and continuing tension over the Iranian nuclear program.

NYMEX January crude settled $1.58 higher at $88.07/barrel, after peaking at $88.69/b earlier in the session.

ICE January Brent gaining $1.25 to close US trading at $110.76/b.

Analysts said that market optimism about better-than-anticipated economic numbers, talk of progress in US budget negotiations, and comments from the International Atomic Energy Agency on Iran fueled bullish sentiment.

"There's a tremendous sensitivity to talk," Tim Evans, analyst at Citi Futures, said. "It's not reacting to underlying actual changes, but a lot of who says what about the fiscal cliff...."

US House of Representatives Speaker John Boehner said Thursday afternoon there has been little to no substantive progress on budget talks in an effort to avoid the so-called "fiscal cliff" at the end of the year, AFP reported.

Still, markets remained broadly optimistic that a deal could be reached before automatic spending cuts and large tax increases take effect, prompting stronger commodities and equities trading in both Asia and Europe, which carried over in to US trade.

NYMEX December RBOB climbed 5.31 cents to settle at $2.7870/gal, the highest level for the front month contract since October 31. The front month contract has shown substantial volatility ahead of expiry in recent months; the December contract expires Friday.

NYMEX December heating oil, which also expires Friday, settled 3.26 cents higher at $3.0406/gal as distillate stocks across the country remain more than 20% below the Energy Information Administration's five-year average.

"Heating oil -- and really, the broader distillate market -- is where there's any real tightness," Evans said.

The US Commerce Department released revised numbers for third-quarter GDP growth on Thursday morning, upgrading annualized growth estimates to 2.7% from 2% due to increases in federal government spending and private inventory investment, AFP reported.

"The US economic picture does continue to brighten overall," Mike Fitzpatrick of the Kilduff Report said in a note. "Regarding the GDP revision, it is mostly thanks to inventory builds. Still, equities will feed off the data, and they have an upward bias on the economic data."

The Dow Jones Industrial Average was up 30.4 points at 13,015.5, while the S&P 500 was up 5.53 points at 1,415.46.

The head of the IAEA requested diplomatic "urgency" in ongoing discussions with the Iranian government over the country's nuclear program, AFP reported, which added to the day's bullish bent, analysts said.

"A renewed focus on the lack of progress on the Iranian nuclear issue seems to be adding on to the geopolitical risk premium on oil prices, although the flip side of this talk is that fresh talks with Iran also seem more likely," Evans said.

--Paula VanLaningham, paula_vanlaningham@platts.com

--Edited by Kevin Saville, kevin_saville@platts.com