Crude Gains, Pulled Higher By Equities

Crude futures ended higher Thursday, bouncing back from midday losses as stock markets rallied and U.S. oil stockpiles posted modest increases.

Nymex light, sweet crude for February delivery settled 29 cents higher, or 0.3%, at $99.65 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures exchange traded 55 cents higher at $107.96 a barrel.

After a midday dip into negative territory, oil prices were pulled along by a rally in equities, which rose on data showing improvement in the U.S. housing and employment sectors.

The Dow Jones Industrial Average, which has served as a guidepost for the oil market in recent months as crude traders eye economic sentiment, was recently 108 points higher at 12261.

The increase in the stock market was coupled with weekly U.S. oil inventory data from the Department of Energy. The agency said Thursday that U.S. oil inventories rose by 3.9 million barrels in the week ended Dec. 23.

While the results were above analysts' average estimate, Peter Donovan, a vice president and broker at Vantage Trading in New York, said the report inspired some relief buying after the American Petroleum Institute, an industry group, released its own data Wednesday showing a much larger 9.6 million-barrel build.

"The Energy Department build was just so much less than the API number," Donovan said.

Still, the report also showed a drop in implied demand for fuel products, suggested that the massive 10.6 million stockpile decline in the week-earlier report was a one-time event linked to year-end shuffling of inventory by refineries.

Stockpiles of distillates, which include heating oil and diesel, increased by 1.2 million barrels. Gasoline stockpiles fell by 700,000 barrels after analysts had expected a 500,000-barrel drop.

Futures have hung near the $100 a barrel mark for most of December. Improving economic data in the U.S., the world's largest oil consumer, has created expectations of rising demand. But weakness in Europe continues to drag down crude and other commodities as investors worry about the consequences of the region's debt crisis.

"In Europe there are still a lot of worries," said Phil Flynn, an analyst at PFGBest. He added that price moves could be exaggerated this week due to light volumes.

Meanwhile, statements from the U.S. and Iran regarding the Strait of Hormuz have raised tensions in the oil-producing region and helped put a floor under prices.

The U.S. Navy force stationed in the Persian Gulf maintained normal interaction with its Iranian counterpart as Tehran conducts war games in the Gulf. On Wednesday, the U.S. military warned against any attempt by Iran to close the strait, which handles roughly 15 million barrels of oil a day.

"Any attempt to close the strait will not be tolerated," George Little, the Pentagon press secretary, said. "The strait is an economic lifeline for countries in the Gulf, including Iran."

The statement came in response to earlier threats by Iran to shut the channel if the West pressed ahead with sanctions over the nation's nuclear program.

"If our enemies in the West start conspiring against us, we'll take strong action to put them in their place," said First Vice President Mohammad Reza Rahimi in a speech to Iranian students Tuesday.

Front-month January reformulated gasoline blendstock, or RBOB, settled 2.88 cents, or 1.1%, higher at $2.6801 a gallon. January heating oil settled 2.41 cents higher at $2.9175 a gallon.


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