U.S. crude-oil futures jumped 1.6% Tuesday to a five-week high spurred by signs of economic improvement in the world's biggest oil-consumer.
"The market is embracing the fact that the U.S. economy is doing better," said Phil Flynn, broker and analyst at Price Futures.
Benchmark oil futures also were aided in their push to the biggest single-day rise this year by continuing signs that a glut of oil in the Midwest--that weighed on prices--is being drained off.
The Commerce Department said U.S. spending on durable goods rose 5.7%, topping the 4% increase forecast by economists in a Dow Jones Newswires poll. Traders looked favorably on the data, even as a jump in civilian aircraft orders helped mask a decline in business investment in big-ticket items.
The strong durable goods showing was joined by indications of recovery in the housing market. U.S. home prices rose more than expected during January from a year earlier, the biggest increase since the summer of 2006, according to Standard & Poor's Case-Shiller home-price indexes.
But the Conference Board said U.S. consumer confidence fell more than eight points to 59.7 in March, amid economic uncertainty created by mandated federal budget cuts.
Andy Lebow, senior vice president for energy futures at Jefferies Bache LLC, said "traders live in great hope that the economic data translates into higher oil demand."
Light, sweet crude oil for May delivery on the New York Mercantile Exchange settled 1.6% higher at $96.34 a barrel, the highest price since Feb. 19. Front-month crude oil has gained 4.2%, or $3.89 a barrel in the past three sessions, vaulting higher after breaking through the top of a $91-$94 trading range that framed prices for the past month.
May ICE North Sea Brent crude oil settled $1.19 a barrel higher, $109.36 a barrel.
Brent's premium to the U.S. benchmark, which stood at $20 a month ago, dropped back to $13.02 a barrel, the lowest level since July 3, after falling below $12 a barrel in intraday trading.
Rising flows of North Sea oil after production snags were resolved in recent weeks is keeping pressure on Brent, as is weaker demand in Europe caused by refinery maintenance and the economic slowdown.
Gene McGillian, broker and analyst at Tradition Energy, said new investors continue to emerge in the market buying the Nymex contract and selling the Brent contract.
The U.S. benchmark has been gaining at the expense of Brent as increased volumes of domestic oil are moving out of the chokepoint at Cushing, Okla. down to Gulf Coast refineries, where they are grabbing market share from imported crudes and depressing Brent prices.
"We've seen Cushing levels drop below 50 million barrels as the bottleneck is easing," he said. "We've seen draws for the past two weeks and people are expecting more as folks are moving barrels by trains and trucks as well as the pipeline. That's really added more fuel to the bulls' fire."
Upcoming U.S. oil inventory data is expected to show crude oil stocks rose, despite a modest gain in refinery operations last week.
According to early estimates from five analysts surveyed by Dow Jones Newswires, U.S. crude oil inventories rose by 700,000 barrels in the week ended March 22.
The closely watched government survey from the Energy Information Administration is due to be released at 10:30 a.m. EDT Wednesday. The American Petroleum Institute, an industry group, is due to report its own data at 4:30 p.m. EDT Tuesday.
Forecasters expect the data to show gasoline stocks dropped by 900,000 barrels, while distillate stocks (heating oil and diesel fuel) fell by 600,000 barrels. Refiners are expected to boost operations by 0.3 percentage point to 83.8% of capacity, based on EIA's data.
Mark Waggoner, president of Excel Futures, said he expects declines in inventories of refined products, especially gasoline, will keep prices support as the spring-summer driving season approaches, boosting fuel demand.
April-delivery reformulated blendstock gasoline futures settled 4.8 cents higher, at $3.1106 a gallon. April heating oil settled 0.41 cent higher, at $2.8813 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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