U.S. crude futures rose Wednesday after weekly government data on domestic oil inventories showed falling supplies and a jump in demand for some fuel products.
U.S. oil stockpiles fell by 1 million barrels last week to the lowest level since October, according to the U.S. Energy Information Administration.
Stocks of distillate, which include heating oil and diesel, fell by 1.1 million barrels, and a measure of demand for those fuels rose 20% from a week ago.
For months, oil stockpiles have been rising amid higher U.S. output and cooling fuel demand. But the data Wednesday suggests that lower diesel and heating oil stocks could prompt refineries to produce more of those fuels, eating into oil supplies.
"It's all distillate," said Carl Larry, head of trading advisor Oil Outlooks and Opinions. "If this is right, the issue is, are we going to have enough supply to meet that demand?"
Light, sweet crude for January delivery recently traded $1.22 higher at $89.15 a barrel on the New York Mercantile Exchange, on pace for the highest settlement since mid-November.
The January contract expires at settlement Wednesday, and the more heavily-traded contract for February delivery recently gained 1.3% to $89.57 a barrel, closing in on the key $90 level.
Brent crude on the ICE futures exchange for February delivery traded 96 cents higher at $109.80 a barrel.
U.S. oil futures moved to the high end of a recent trading range between $85 and $90 a barrel that has held crude for most of the past two months. But falling stockpiles of distillate may spark worries of supply problems that could prompt additional price gains.
"With crude we are very well supplied, but with heating oil, we are at very low levels," said Tariq Zahir, managing member of Tyche Capital Advisors.
January heating-oil futures traded 1.1% higher to $3.0281 a gallon following the report, the highest level in over two weeks.
Front-month January reformulated gasoline blendstock, or RBOB, recently traded 1.3% higher at $2.7256 a gallon, even as gasoline stockpiles rose to a four-year high for this time of year.
Still, some analysts and investors remain skeptical that oil prices will be able to extend the rally amid a weak global economic outlook and worries about negotiations between the White House and Congressional Republicans over tax increases and budget cuts known as the "fiscal cliff."
"Everything going forward from here is going to be on the fiscal cliff," said Mr. Zahir. "Because we're on the high end of the range, we're going to need some big headlines to get crude going higher."
Copyright (c) 2012 Dow Jones & Company, Inc.
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