U.S. crude futures rose to a fresh one-month high Tuesday after a measure of U.S. manufacturing improved over the previous month and equities gained, signalling that the economy is continuing to recover.
Light, sweet crude for June delivery gained $1.29, or 1.2%, to settle at $106.16 a barrel on the New York Mercantile Exchange after the Institute for Supply Management's purchasing managers index rose to 54.8 in April from 53.4 in March. The April reading came in above economists' estimates calling for a reading of 52.9.
The settlement was the highest since March 27.
Brent crude on the ICE futures exchange rose 19 cents to $119.66 a barrel.
Oil prices have looked to broader markets, as well as economic reports, in recent days to gauge the threat of slowing economic growth in both the U.S. and Europe. An improvement in U.S. manufacturing activity would likely help boost oil demand as the industrial sector is a major consumer of fuel products.
"Markets were flat and nervous ahead of this number because of how it reflects on to oil," said Matt Smith, an analyst at Summit Energy. "Continuing expansion in the manufacturing sector is going to drive distillate demand, and it works on down the chain."
U.S.-traded crude held in a tight range between $100 and $105 a barrel throughout April, after spiking to around $110 a barrel earlier in 2012 on worries about the growing tensions between Iran and the West.
The sideways movement in the oil market came as traders weighed threats of economic slowdown against the possibility that U.S.-traded oil prices could benefit from the impending reversal of a key oil pipeline to the Gulf Coast.
The Seaway Pipeline is expected to reverse course starting May 17 to send oil from the storage hub of Cushing, Okla., to refineries along the Gulf of Mexico.
A glut of oil stuck in the middle of the U.S. for the past year has depressed domestic oil prices compared to Europe's benchmark, Brent crude. Many traders and analysts expect the reversal, which is due to reach full capacity next year, will narrow the price spread. But few are sure when prices will close the gap.
The premium for Brent crude fell below $14 for the first time in nearly three months Tuesday because of the surge in Nymex-traded crude.
"A lot of people are still sitting on their hands," said Carl Larry, head of oil-research newsletter Oil Outlooks and Opinions. "Everybody is going to start concentrating on that Seaway reversal."
Front-month June reformulated gasoline blendstock, or RBOB, settled 2.75 cents, or 0.9%, lower at $3.0971 a gallon. June heating oil settled 0.71 cent, or 0.2%, lower at $3.1771 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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