US Crude Up; Brent At 8-Month High On Supply Worries

NEW YORK - U.S. crude oil futures prices settled at a seven-week high Thursday, while North Sea Brent ended at an eight-month high as buyers scrambled to line up alternative supplies amid outages in Yemen, South Sudan and worries about near-term flows from Iran.

Iran's threat to cut off crude supplies to Europe, well ahead of a European Union embargo this summer, has sent jitters through the market as refiners in the region look for alternative supplies. Meantime, some Asian buyers, backing away from Iranian crude amid tightening sanctions in response to Iran's nuclear program, have been buying up other crudes favored by European refiners.

That buying spree, underpinning Brent, has been fueled further by a strike in Yemen that has shut in about 900,000 barrels of crude oil, usually bound for Asia. Meantime, supplies of South Sudan crude, have been missing from the market since January, further tightening the menu of crude available for Asian buyers. Negotiators from Sudan and South Sudan are expected to begin talks next to resolve a dispute over transit fees that has kept output of some 450,000 barrels a day off the market.

Andy Lipow, president of Houston-based Lipow Oil Associates, said U.S. prices also were "rising on the back of good economic news. The hope is the better picture will encourage strength in the oil market."

New claims for U.S. jobless benefits fell by 13,000 last week to the lowest level in nearly four years, while January housing starts were stronger than expected.

Light, sweet crude oil for March delivery on the New York Mercantile Exchange settled at $102.31 a barrel, a seven-week high. ICE North Sea Brent crude for April settled at $120.11 a barrel, up $1.18, the highest since mid-June.

March-delivery reformulated gasoline prices settled at a six-month high of $3.0471 a gallon, up 4.04 cents, on worries that refinery closures in the Northeast and at offshore plants that ship to the East Coast will crimp supplies this summer.

"The market is quite concerned about gasoline supply" as the market heads from the doldrums of winter to the peak demand summer season.

Gasoline exports are estimated to have dropped last week to the lowest level since early January, but were still twice year-ago levels, according to the Energy Information Administration.

Tim Evans, analyst at Citi Futures Perspective, warns that as gasoline is "dangerously overbought and lacking either low inventories or robust physical demand." Evans said high gasoline prices are "likely to further undercut consumer demand for fuel, both in the near term and over the long run."

Year-to-date gasoline demand is down 7%, or about 600,000 barrels a day, while the national average retail price is 10% above a year ago, at a $3.40 a gallon, a record high for the first six weeks of the year. Gasoline inventories on Feb. 10 stood at a one-year high, and are enough to cover 28.4 days of current demand, above the five-year average of 25.8 days of cover.

The EIA estimated that weekly distillate (diesel/heating oil) exports are running at a record high 1.124 million barrels a day, or 64% above a year ago. That's based on indications that exports in December topped the previous record of 1.067 million barrels a day in October.

Heating oil for March delivery settled 1.81 cents higher, at $3.2097 a gallon, the most since May 2.


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