Crude-oil futures prices recovered Monday from early concerns over Europe's economic outlook, with the U.S. benchmark inching up to a fresh four-week high.
Oil pries had joined in an early, broad selloff sparked by worries over the potential for new fiscal woes in Europe as Cyprus weighed a controversial bailout plan. As part of a European Union and International Monetary Fund rescue package for its banks, Cyprus is considering a one-time tax levy on accounts held in its banks. Traders said that if such a tax becomes standard in other rescue packages, investors will flee, churning up concerns of a contagion effect in European economics battling sovereign debt crises.
The knock-on fears sent the euro to its lowest level of the year against the dollar, giving investors two strong reasons to flee oil futures. Analysts said fresh trouble in European economies would further cut weak oil demand, while a stronger dollar means crude-oil futures become pricier for investors using some foreign currencies.
An early drop to $91.76 a barrel in U.S. prices appeared to signal that market bulls were losing the clout that pushed prices up near $94 last week, despite rising crude-oil stockpiles and weak refiner demand during seasonal maintenance.
But as the euro steadied, "the fears evaporated and we started to stabilize. All the worries were a little overdone," said Gene McGillian, broker and analyst at Tradition Energy.
Light, sweet crude oil for April delivery on the New York Mercantile Exchange settled 29 cents higher, at $93.74 a barrel, the highest level since Feb. 20.
ICE North Sea crude oil for May ended modestly lower, at $109.51 a barrel, down 31 cents. It traded to an early low of $107.78 a barrel.
Brent has lost ground against the U.S. benchmark in recent days as North Sea crude oil supplies are returning to normal levels.
Michael Wittner, analyst at Societe Generale, said North Sea oil flows in April are expected to rise by 265,000 barrels a day from March, as pipeline and production snags have been resolved. Separately, Statoil ASA said output from the Oseberg field in the Norwegian North Sea was returning to normal after a gas leak and power cut last week. Oseberg is expected to supply 3.6 million barrels of crude in April.
Analysts also noted that crude-oil inventories at Cushing, Okla., declined in the week ended March 8, suggesting that the oil was finding its way down to the key U.S. refinery hub, most likely by increased rail shipments. Greater flows from the midcontinent to the Gulf means U.S. refiners need less imported crude, putting pressure on Brent, the global benchmark.
Early indications from four analysts show U.S. weekly oil data are expected to show crude-oil stockpiles rose last week while refiners kept operations little changed at low levels. According to the survey by Dow Jones Newswires, U.S. crude-oil inventories rose by 1.1 million barrels in the week ended Friday, adding to already high stocks.
In the week ended March 8, the combination of refiner demand and higher supply left inventories at a level sufficient to cover 27.4 days of refiner needs, the highest level since 1992, and compared with the five-year average of less than 24 days of cover.
The closely watched government survey from the Energy Information Administration is due to be released at 10:30 a.m. EDT Wednesday, while the American Petroleum Institute, an industry group, releases its inventory report at 4:30 p.m. EST Tuesday.
Analysts also expect the data to show gasoline stocks dropped by 2.1 million barrels and distillate stocks (heating oil and diesel fuel) fell by 1.3 million barrels.
Refiners are expected to inch operations higher by 0.1 percentage point from the EIA's level of 81% of capacity last week, which was the lowest since Feb. 25, 2011, amid seasonal maintenance work at plants.
April-delivery reformulated gasoline futures settled 3.49 cents, or 1.1%, lower at $3.1289 a gallon, the lowest level since March 7. April heating oil settled 1.23 cents lower at $2.9267 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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