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 Market perception that the gradual startup of TransCanada Corp's
Keystone pipeline would move supplies from oil hub Cushing,
Oklahoma, where the U.S. crude oil contract is priced, to the Gulf
Coast, supported prices.
A lack of pipelines in the region has kept U.S. prices depressed
relative to Brent oil for the past three years.
"The Brent/WTI spread is contracting a bit more, and that always
helps crude prices," said Tariq Zahir, managing member of commodity
trading advisor Tyche Capital Advisors in New York. "The market is
expecting a little bit more of a draw at Cushing since that pipeline
has opened up. It's a volatile trade."
Brent oil also rose, but not as strongly, reversing losses on Monday
spurred by concerns over emerging markets and the perception of a
slowing economy in China.
Brent crude touched a high of $107.79 a barrel, up $1.10, and then
settled up 72 cents at $107.41 a barrel. On Monday, Brent fell
$1.19, its biggest loss since Jan. 2.
U.S. light crude oil touched a high of $97.66, up $1.94, and settled
$1.69 higher at $97.41, its highest settlement since Dec. 31.
The spread between the two benchmarks narrowed by as much as $1.20
to $9.77 on Tuesday before settling at $10.
Front-month U.S. ultra low-sulfur diesel futures (ULSD) , commonly
known as heating oil, settled 2.94 cents higher at $3.1218 per
gallon. It traded lower earlier in the session as traders sold
contracts to exit positions ahead of Friday's expiration of the
February contract.
Also lending support to the market was strong economic data from the
United States, the world's largest oil consumer. Consumer confidence
hit a five-month high in January and a key index of house prices
posted its largest year-over-year rise since February 2006.
Those two pieces of data seemed to overshadow a poor durable goods
report, which showed orders for long-lasting U.S. manufactured goods
dropped 4.3 percent in December.
U.S. crude oil slightly pared gains after the American Petroleum
Institute reported crude inventories rose by 4.7 million barrels
last week and stocks rose at Cushing.
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Distillate inventories, including heating oil and diesel fuel, fell
by 1.8 million barrels as demand rose over a brutally cold winter
across much of North America.
Analysts, on average, expected distillate stocks, including heating
oil and diesel fuel, to fall by 2.2 million barrels, while U.S.
crude stocks likely rose by 2.3 million, according to a Reuters
poll.
The U.S. Energy Information Administration is expected to release
its data on Wednesday at 10:30 a.m. EST (1530 GMT).
Meanwhile, global equities markets steadied after three days of
intense selling, which also boosted oil prices.
Investors continued to watch the U.S. Federal Reserve as it
considers further tapering its bond-buying program. The central bank
is expected to announce a $10 billion cut to its asset purchases in
February at the conclusion of a two-day meeting on Wednesday.
A rollback would support the dollar, weighing on commodities priced
in the currency. Investors have been concerned about the withdrawal
of market-friendly U.S. monetary stimulus, as well as unsettled
conditions in emerging markets, which could pressure oil prices
lower.
In the world's second-largest oil consumer, China's factory activity
likely cooled in January to a six-month low, a Reuters poll showed,
underscoring views that an economic slowdown there has continued
into 2014.
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