Crude Rises For Fifth Straight Session

NEW YORK (Dow Jones Newswires), Nov. 8, 2011

Oil futures climbed for their fifth straight session Tuesday, extending a month-long rally to close at nearly $97 a barrel as tightening oil supplies and a host of macro-economic factors buoyed the market.

Light, sweet crude for December delivery ended the day up $1.28, or 1.3%, at $96.80 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures Europe exchange settled up 44 cents, or 0.4%, at $115.00 a barrel.

The market has taken on the characteristics of a near-term supply squeeze, in a bullish signal for oil traders. The U.S. government's weekly oil inventory report is due out Wednesday, with the consensus estimate of 12 analysts surveyed by Dow Jones Newswires expecting a small build in supplies of 700,000 barrels. Despite low domestic demand, supplies have dropped as well, with low levels of imported crude and large draws on inventory in recent weeks, bringing inventories at one point below their five-year average.

The American Petroleum Institute released its own industry measurements late Tuesday, finding a build of 148,000 barrels in crude, a drop of 1.5 million barrels in motor gasoline, a drop of 2.9 million barrels in distillates and a run rate reduced to 81.7% of capacity.

"People are looking for a drop in supplies, and that's pushing the market higher," said Matt Zeman, market strategist at brokerage Kingsview Financial. "You have a general increase in risk appetite again."

As U.S. oil demand has waned, it has continued to increase in the developing world, with the Energy Information Administration reporting Tuesday that Chinese oil demand is expected to have risen 7.5% in 2011.

"What's really giving the market a jolt right now is that China has been a huge buyer recently of diesel fuel," said James Cordier, a portfolio manager with "The demand isn't here, it's all throughout India, China, Asia. Any additional oil that could be floating on the seas right now has a home, and we haven't seen that in a while."

Meanwhile, analysts also said the potential resignation of Italian Prime Minister Silvio Berlusconi was being viewed as a positive for oil prices, as it would remove an impediment to progress on solving Italy's sovereign debt woes. They said the market was also being driven higher on fears of political fallout over Iranian nuclear ambitions, as the International Atomic Energy Agency publicly charged Iran with developing nuclear weapons technology.

Analysts are sharply divided over whether the steep rise in oil prices--more than $20 a barrel since Oct. 4--is justified, with some saying it will soon make a run above the psychologically important $100-a-barrel level and others saying it is primed for a fall. In a note Tuesday, research firm Cameron Hanover said oil is overbought and headed for a fall.

"Prices surely did not belong that low in early October," the firm said. "But, to believe that crude oil prices should be more than $20 higher--just about a month later--stretches the limits of fundamental fact-fitting."

But research firm Ritterbusch and Associates said it expects Nymex prices to rise as high as $102 and Brent to make a run at $120. "The majority of event-type items currently available to the oil complex appear to be tilted in a bullish direction," the firm said.

Front-month December reformulated gasoline blendstock, or RBOB, dropped 2.18 cents, or 0.8%, to $2.7064 a gallon. December heating oil fell 0.37 cent, or 0.1%, to $3.1161 a gallon.

Copyright (c) 2011 Dow Jones & Company, Inc.