NEW YORK--U.S. crude futures rose 1.2% Tuesday, pushing above $97 a barrel for the first time in more than four months as investors wager that signs of an improving economy will translate into higher fuel demand.
Oil has rallied 9.7% since early December, gaining momentum in recent days on a stream of data that pointed to improving economic conditions in the U.S., the world's largest oil consumer.
On Tuesday, Standard & Poor's Case-Shiller home-price index showed a 5.5% increase from last year. Last week, applications for unemployment benefits fell to a five-year low. Stock markets, used by oil traders to gauge economic sentiment, have also rallied to start the year. The Standard & Poor's 500 is up 5.7% in 2013.
Vikas Dwivedi, global oil and gas economist at Macquarie, forecast oil demand will rise by 875,000 barrels a day in 2013. But a speedier recovery of the global economy, due in part to the U.S., will mean a sharper rise in fuel use, he said.
"If in 2013 the various big economies of the world hit their stride, we could be well over a million barrels a day of demand growth. Then you have a pretty interesting market," Mr. Dwivedi said.
Light, sweet crude for March delivery settled $1.13 higher at $97.57 a barrel on the New York Mercantile Exchange, the highest since Sept. 14. Brent crude on the ICE futures exchange settled up 88 cents, or 0.8%, at $114.22 a barrel.
After a pipeline issue in the U.S. crimped oil's gains last week, analysts and traders said the focus has shifted back to the global economy. The outlook looks rosier--compared to last year when Europe's debt crisis and concerns about tax hikes and spending cuts in the U.S. made investors wary of betting big on economic growth.
"We're over the fiscal cliff and that kind of stuff, so the market is starting to go up on this economic optimism," said Phil Flynn, an analyst at Price Futures Group in Chicago.
Investors have piled into bullish bets over the past two months, according to data from the Commodity Futures Trading Commission. Money managers' net-long position in oil futures and options is at the highest level since March.
Of course, some traders believe the market has rallied too quickly amid a still-tepid recovery, particularly as U.S. prices move back toward the key $100 a barrel level.
"We might see $100, but I don't think we'll hold above $100 in the short term," said Mark Waggoner, head of Excel Futures. "Demand just isn't there. There has got to be a stopping point."
Meanwhile, in the U.S. new pipelines are helping to bring oil stuck in the middle of the country to refineries on the coast, which is beginning to relieve a supply glut that has depressed U.S. crude prices compared to Europe's Brent crude.
The premium for Brent crude futures fell under $17 Tuesday.
Investors will be looking ahead to weekly data on U.S. oil and fuel stockpiles from the U.S. Energy Information Administration, due Wednesday at 10:30 a.m. EST, for further signs of oil demand.
Oil stockpiles are expected to rise by 2.7 million barrels, according to a Dow Jones Newswires survey of analysts. Gasoline stockpiles are seen rising by 200,000 barrels, while stocks of distillate, which include heating oil and diesel, are seen falling by 900,000 barrels.
The American Petroleum Institute, an industry group, is due to report its own stockpiles data at 4:30 p.m. EST Tuesday.
Front-month February reformulated gasoline blendstock, or RBOB, settled 3.86 cents higher at $2.9734 a gallon. February heating oil settled 4.76 cents higher at $3.1092 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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