US Crude Futures Rise Versus Oil Traded Overseas

U.S. crude-oil futures prices rose Monday as investors continued to wager domestic oil prices will increase compared to oil traded overseas.

The discount for U.S.-traded West Texas Intermediate crude-oil versus Europe's Brent crude futures shrunk to $13.36 a barrel, the narrowest price spread since July, as U.S. futures settled at a one-month high.

Analysts and traders said the agreement reached early Monday between Cyprus and its international lenders removed a hurdle standing in the path of both oil markets. But throughout Monday's session, traders extended a recent rally in U.S. crude on hopes that a decline in oil stockpiles in the middle of the U.S. will continue.

"Growing capacity of both rail and pipelines is starting to drain Cushing," said Andy Lebow, a broker at Jefferies Bache in New York, referring to Cushing, Okla., a key oil-transit hub. The latest gain in WTI, he said, "is a Cushing trade."

Light, sweet crude for May delivery settled $1.10, or 1.2%, higher at $94.81 a barrel on the New York Mercantile Exchange, the highest settlement since Feb. 19.

Brent crude on the ICE futures exchange traded 51 cents higher at $108.17 a barrel.

Last week, the U.S. Energy Information Administration said stockpiles in Cushing fell by 300,000 barrels to 49 million barrels in the week ended March 15, the lowest level since Dec. 14.

Cushing is the delivery point for Nymex crude-oil futures, so any changes in oil inventories there can have an outsized influence on futures prices.

In January, stockpiles in Cushing rose to a record 51.9 million barrels after the Seaway Pipeline from Cushing to the Gulf Coast was forced to reduce capacity. The Brent-WTI price spread widened to more than $23 in response.

Analysts at JBC Energy said Monday it's possible the discount could shrink to nearly $11 as more investors pile into the wager. But it's unlikely to hold at that level because U.S. oil shipments by rail become unprofitable when the discount hits $15, JBC said.

Meanwhile, after U.S. prices held relatively flat over the past two weeks amid concerns about Europe's debt crisis, oil traders are now focusing on improving economic data and signs of rising oil demand that they say could help boost prices.

"The bailout has created some positive sentiment in the market," said Gene McGillian, a broker at Tradition Energy, referring to the agreement forged early Monday between Cyrpus and its creditors. He said an improving economic outlook suggest prices could see further gains.

"The factors that drove us to $98 are emerging again," he said.

Front-month April reformulated gasoline blendstock, or RBOB, settled 0.01 cent higher at $3.0626 a gallon. April heating oil settled 0.71 cent lower at $2.8772 a gallon.

Copyright (c) 2012 Dow Jones & Company, Inc.

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