Crude Oil Futures Settle at Two-Week Highs on Supply Concerns

Crude-oil futures prices settled at two-week highs Thursday on concerns over tightening supplies, while U.S. gasoline demand heats up ahead of the peak spring-summer driving season.

Traders said weakness in the dollar, rising equities prices and news that U.S. weekly claims for jobless benefits fell to the lowest level in nearly five years added to buying interest.

"There are a bunch of things going on. There does seem to be some risk-on buying in the last couple of days," said Andy Lebow, senior vice president for energy futures at Jefferies Bache. Mr. Lebow and others said oil-market investors are sensing that oil demand in the U.S. will be stronger in the near term than elsewhere and are favoring the U.S. benchmark futures contract over internationally traded North Sea Brent crude.

Implied demand for gasoline--the most widely used petroleum product in the world's biggest oil consumer--climbed to its highest level since November last week, U.S. government data showed. Gasoline stockpiles logged their biggest drop in a year, breathing new life into futures contracts that fell to a four-month low in recent days.

"People have been so down on demand. Whether it's a fluke, or seasonal, it doesn't really matter. There is a perception that demand is getting better," said Phil Flynn, analyst at Price Futures.

The EIA has forecast that gasoline demand will be slightly down this spring-summer from a year-earlier and drop to a 12-year low. But the near-term strength is spilling over into crude oil prices, on expectations that refiners will use more to turn out more refined products.

Light, sweet crude oil for June delivery on the New York Mercantile Exchange climbed 2.4%, or $2.21 a barrel, to $93.64 a barrel, the highest price since April 10. The rise followed a 2.5% gain on Wednesday that was the biggest rise for the year.

June Brent crude oil on the InterContinental Exchange rose 1.68 a barrel, or 1.7%, to $103.41 a barrel, a two-week high. The gain was the biggest since Dec. 26.

Brent's premium to the U.S. benchmark was $9.77 a barrel at the settlement, the smallest since Jan. 3, 2012. The spread topped $23 a barrel as recently as early February, but surging U.S. oil output, now at a 21-year high above 7.3 million barrels a day has cut deeply into U.S. crude imports, shrinking Brent's value to the U.S. benchmark.

New technologies such as hydraulic fracturing and horizontal drilling have unlocked vast oil reserve trapped in shale, pushing U.S. output higher by 20% this year and by 1.2 million barrels a day from a year ago. Imports have dropped by as much as domestic output has risen, as crude supplies make their way to the Gulf Coast refining hub, eliminating the need for foreign barrels which compete with Brent.

Brent found support Thursday from a Reuters report quoting industry sources saying that work on a gas pipeline will cut crude oil output from the seven-field Norwegian Ekofisk complex for three weeks this June. Ekofisk produces around 170,000 barrels a day of crude.

Buoyant gasoline future found further strength from a fire at a unit of a Louisiana refinery that makes octane enhancers for gasoline.

The fire, at a reformer unit at Alon USA Energy Inc.'s 83,000-barrels-a-day Krotz Springs, La., was quickly extinguished, the company said. But the impact on operations at the plant isn't yet clear.

Nymex May reformulated gasoline futures posted their biggest gain since March, rising 6.44 cents, or 2.3%, to settle at $2.8118 a gallon, a two-week high.

Heating oil for May delivery rose for a sixth straight session, settling 6.04 cents, or 2.1% higher, at $2.9017 a gallon. The rise was the biggest since Nov. 19, 2012, and put prices at a two-week high. The heating oil contract trades as a proxy for ultra-low sulfur diesel fuel, which fuels trucks and trains.

Copyright (c) 2013 Dow Jones & Company, Inc.

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