Evidence of spending growth sends crude soaring

The price of crude today hit its highest level since the first trading day of the year, propelled by GDP data showing a healthy rise in consumer spending.

The Commerce Department released its first estimate for gross domestic product for the final quarter of 2013 earlier today, and the data showed the US economy grew at an annualised rate of 3.2%.

This is a solid result, given cuts in government spending, with consumer spending increasing at a pace of 3.3% – consumer spending accounts for nearly 70% of the US economy. Overall growth for the whole year was just 1.9%, so that it is clear the economy picked up strength in the second half of the year.

The unusually cold weather that the US has been experiencing has been supporting the price of crude – January has been the coldest month in the States in well over a decade. The EIA yesterday published its weekly petroleum status report, which showed consumption of distillate fuel up 20% at 4.52 million barrels a day, close to a four-year high, along with a third straight drop in distillate inventories. Falling inventories of distillates (which includes heating oil) along with strong demand should result in greater consumption of crude oil from which distillate fuels are derived.

The pace of growth of the US economy raises hopes that demand for crude will remain buoyant even after the cold weather retreats. By mid-afternoon in New York US crude oil futures for March had risen 1.01% to $98.25 a barrel, earlier reaching $98.60, the highest level since 2 January.

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