Crude-oil futures prices settled higher Tuesday, while gasoline and heating oil prices were stronger on anticipation of tightening supplies.
Prices had stumbled Monday in a broad selloff that handed equities their first triple-digit loss of the year and swept through commodities markets. After oil's biggest fall in a month, the 1.6% loss Monday was seen as a buying opportunity, analysts said.
U.S. benchmark crude prices were pulled higher by strength in prices of refined products. Inventories of gasoline and distillate fuel [heating oil/diesel] are unusually low in the Northeast and are expected to tighten further as refiners reduce operations due to seasonal maintenance work on facilities.
"The market has a momentum of its own," said Gene McGillian, broker and analyst at Tradition Energy. "The rally is starting up again" on hopes of improving economic growth which will spur a rise in oil demand, he said.
"The fundamentals are the weak spot, but this market doesn't seem to want to trade down," Mr. McGillian said, adding that gains in demand will need to be apparent soon to sustain gains.
Monday's "hard selloff was simply a correction in a bull market that has yet to fully run its course," said Jim Ritterbusch, president of Ritterbusch & Associates, an advisory firm.
Light, sweet crude oil for March delivery on the New York Mercantile Exchange settled 47 cents higher at $96.64 a barrel. ICE North Sea Brent crude oil settled 92 cents higher at $116.52 a barrel. Brent's premium to Nymex widened $19.88 a barrel, the highest level since Dec. 27.
Mr. Ritterbusch said Brent's premium to the U.S. benchmark continues to stretch because of snags on the Seaway pipeline, rather any fundamental tightness in Brent supplies.
Brent's premium to the U.S. benchmark price had been shrinking in recent weeks on the expectation that refiners in the U.S. Gulf region would need less imported crude oil of similar quality to Brent as the Seaway pipeline increased flows from the Midwest into the key refining hub. But operational problems have limited the volumes moving on the pipeline, allowing Brent to recover at the expense of the U.S. benchmark.
Analysts noted that Saudi Arabia, the world's biggest oil exporter, has scaled back its oil output by about 700,000 barrels a day since November and pumped just over 9 million barrels a day. That came amid forecasts that the world will need less oil from the Saudis and others in the Organization of the Petroleum Exporting Countries, as output from producers outside the group, led by the U.S., continues to grow.
Because of strong, persistent gains in Brent, "we feel that odds are high of some gradual uplift in Saudi production designed to restrict additional crude price gains," Mr. Ritterbusch said. Brent had topped $117 a barrel earlier Tuesday, a settlement at that level would be the highest since May 2012.
Analysts said the market is expected to take its near-term cues from the weekly U.S. oil inventory data.
A Dow Jones Newswires survey shows analysts expect data to show U.S. crude oil inventories rose by 2.9 million barrels in the week ended Friday while refiners trimmed operations relative to capacity by 0.1 percentage point.
Gasoline stocks are expected to rise by 900,000 barrels, while distillate stocks, comprising heating oil and diesel fuel, are expected to drop by 600,000 barrels.
The American Petroleum Institute, a trade group, releases its inventory data for Feb. 1 at 4:30 p.m. EDT Tuesday, while the more widely watched federal figures from the Energy Information Administration are due at 10:30 a.m. EDT Wednesday.
March-delivery heating oil futures settled at a 16-week high, gaining 3.73 cents, or 1.2%, to settle at $3.1913 a gallon.
Front-month reformulated gasoline prices rose 2.59 cents to settle at $3.0374 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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