Crude oil traded at $98.08 a barrel on Wednesday afternoon, representing a 3.1% gain on the week.
 
The rise in crude oil this week is due to a number of factors, including better-than-expected US economic data releases and a robust Spanish debt auction, which helped revive risk appetite – at least temporarily. Data released on Tuesday showed US housing starts surging 9.3% to an annual pace of 685,000 in November, the highest level in 19 months. All else equal, a pickup in construction tends to have a positive effect on the wider economy, since materials and furnishings need to be purchased for the new stock of homes. The recent US Philadelphia Fed manufacturing index, jobless claims data and non-farm payroll figures have all been very encouraging, suggesting that the US economic recovery remains intact so far. Over in Europe, separate reports showed that Spain managed to sell €5.64 billion of three- and six-month bonds, exceeding the target of €4.5 billion by 25%.
 
The average yield for the three-month government bonds fell from 5.11% in the November auction to 1.737%, while the six-month bond fell from 5.227% to 2.435%. The drop in yields lowers the country’s cost of borrowing and suggests that the market has confidence in Spain’s ability to avoid default. Crude oil was also boosted by fears of a possible oil shock, as tensions between the US and Iran intensifies. Violence in Kazakhstan’s oil-rich Mangistau region added to speculation of a possible oil squeeze. Sumitomo, the third-largest Japanese trading house, said that they expect crude oil to trade between $90 and $100 per barrel next year.
 
‘That will be the core range unless a temporary halt in supplies from the Middle East occurs, which could push prices to $120’, Sumitomo’s chief economist said. Looking ahead, the Energy Department is scheduled to release their inventory report on Wednesday. The government report is expected to show a 2.13 million-barrel drop in stockpiles last week. A separate report from the American Petroleum Institute on Tuesday showed that crude oil inventories fell 4.57 million barrels to 330 million last week.