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 With the front-month contracts for Brent and U.S. crude set to
expire in the coming days, traders bought contracts to cover
positions, driving prices higher.
The biggest market driver was a U.S. government report showing crude
inventories fell significantly more than expected. Ultra low-sulfur
diesel futures (ULSD) rose to a more than one-week high on a
surprise draw, while gasoline inventories rose as arctic-like
weather last week kept drivers off the road.
"This is a weather related report," said Mark Waggoner, president of
Excel Futures in Bend, Oregon. "People just weren't driving — they
were sitting at home.
U.S. oil extended gains by $2.01 to a session high of $94.60, then
settled $1.58, or 1.7 percent, higher at $94.17 a barrel, its
highest settlement since Jan. 2. The February contract expires on
Tuesday following a long U.S. holiday weekend.
February Brent crude rose $1.16 to a session high of $107.55, before
settling up 74 cents at $107.13 a barrel. The contract expires on
Thursday.
Analysts said the rebound in crude oil was overdue. "I think the
market was oversold" when it was down near $91, said Rich Ilczyscyn,
chief market strategist and founder of iitrader.com in Chicago.
Buoyant equities also supported oil. The S&P 500 reached an all-time
high Wednesday, a reassuring signal to traders that the economy is
showing signs of stability even as the U.S. Federal Reserve tapers
its massive stimulus program.
Brent's premium to U.S. crude oil narrowed as the start date of the
southern leg of TransCanada's Keystone pipeline nears. The pipeline
is expected to begin taking crude oil from Cushing, Oklahoma, to the
Gulf Coast starting Jan. 22. The spread <CL-LCO1=R> narrowed by 84
cents to settle at $12.96, the smallest gap in nearly two weeks.
"You're going to see it narrowing in the long haul," Waggoner said.
"I would not doubt if the spread narrows to $2-$3 before
summertime."
U.S. crude oil stocks fell 7.7 million barrels, compared with
estimates of 600,000 barrels. Distillate supplies fell as the market
expected an increase and gasoline inventories ballooned, U.S. Energy
Information Administration data showed.
ULSD futures ended 1.5 percent higher at $2.9796 a gallon. U.S.
gasoline futures settled virtually flat at $2.6264 a gallon.
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LIBYA, IRAN WEIGH
The resumption of oil production at Libya's El Sharara field capped
a rise in Brent, although the main issue is still when the blockade
at Libya's eastern oil ports will end.
Iranian oil exports could also rise by some 500,000 barrels per day
(bpd) through a oil-for-goods deal being negotiated with Russia,
according to Russian and Iranian sources.
Major world powers and Iran have continued to move ahead on an
interim deal that eases some sanctions on Tehran in exchange for
curbs on its nuclear program.
The preliminary accord between Iran and a group of world powers goes
into effect on Jan. 20. Under the deal, Iran's oil exports are to
hold at current levels of about 1 million barrels per day.
Brent drew support from news of loading delays on North Sea Forties
oil cargoes. The Forties crude blend is the most important of the
North Sea crudes underpinning Brent crude.
The delay of those cargoes, coupled with a large draw from U.S. Gulf
Coast inventories, helped bump cash crude differentials to
nine-month highs.
(Additional reporting by Jeanine
Prezioso, Sabina Zawadzki and Selam Gebrekidan in New York, Julia
Payne in London and Florence Tan; editing by William Hardy, Jason
Neely, Andrew Hay and Steve Orlofsky)
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