U.S. crude oil futures prices settled at a two-week high Tuesday, with traders watching the ebb and flow of optimism in talks over avoiding the "fiscal cliff."
Spillover enthusiasm in equities markets helped underpin crude oil, which climbed for a third day and is testing the upper end of its two-month trading range of $84-$90 a barrel, traders said.
In talks on Monday, both sides made what The Wall Street Journal called significant concessions aimed at averting a series of spending cuts and tax increases that would take effect in January, in the absence of a deal. Prices swayed within a near-$1 trading range, with gains narrowing after House Speaker John Boehner (R., Ohio) said he was working on a backup plan should U.S. budget deficit talks with President Barack Obama fail to reach an accord.
Against the nervous backdrop of the budget talks, traders said market players also adjusted positions ahead of U.S. weekly oil inventory data and expiration at Wednesday's settlement of the U.S. benchmark futures contract for January.
Light, sweet crude oil futures for January delivery on the New York Mercantile Exchange settled up 0.8%, or 73 cents, at $87.93 a barrel, the highest price since Dec. 4. In the past three days, the contract gained 2%, or $2.04 a barrel. Nymex February crude oil settled at $88.40 a barrel, up 83 cents.
ICE North Sea Brent for February delivery settled $1.11 a barrel higher, at $108.84 a barrel.
U.S. oil inventory data due Wednesday at 10:30 a.m. EST from the Energy Information Administration is expected to show crude oil stocks fell 1.3 million barrels last week while refiners kept operations unchanged. According to a survey of analysts and traders by Dow Jones Newswires, the data are expected to show a rise of 900,000 barrels in distillate stocks (diesel/heating oil) and a rise of 1.5 million barrels in gasoline inventories.
Late Tuesday afternoon, the American Petroleum Institute said in its weekly data that crude oil stocks fell 4.099 million barrels last week, as refiners boosted operations by 1.1 percentage point. The trade group said distillate stocks fell 1.877 million barrels, while gasoline stocks rose 4.176 million barrels.
"People will be looking at the [inventory] numbers and keeping an eye on the negotiations, but we're solidly within the trading range," said Andy Lebow, senior vice president for energy futures at Jefferies Bache.
Despite expectations that inventories of petroleum products will rise, January futures contracts for heating oil and reformulated gasoline blendstock both rose by 1.4% on Tuesday on worries over an operating snag at the nation's biggest refinery.
Motiva Enterprises LLC again will have to shut down a massive 325,000 barrel-a-day crude oil processing unit at its expanded refinery segment in Port Arthur, Texas, that had recently restarted following six months of repairs, a person familiar with the refinery operations said Tuesday. The remainder of the 600,000 barrel-a-day plant, one the top 10 largest in the world, continues to operate. The plant is a joint venture of Saudi Arabian Oil Co. and Royal Dutch Shell PLC.
January heating oil futures prices settled 4.02 cents higher, at a two-week high of $2.9965 a gallon. Reformulated gasoline blendstock futures for January settled 3.63 cents higher, at $2.6909 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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