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U.S. crude oil futures ended weaker but above the day's lows, while refined products futures hit one-month highs on hopes of a coming improvement in the economy of the world's biggest oil consumer.
Oil traders looked beyond the highest stocks of U.S. crude oil in 32 years, and the current sluggish growth in fuel consumption, to bid up prices late in the session. Analysts said the rally was spurred by the hope that strong indicators from the U.S. market would jump-start sputtering oil demand.
The Labor Department's count of new weekly claims for unemployment benefits came in lower than economists had forecast, while a widely watched indicator of layoffs fell to prerecession levels for the first time. The four-week average of benefits claims dropped to the lowest level since November 2007.
"There's a little bit more optimism there, but I think we have to see it play out a little longer," said Gene McGillian, broker and analyst at Tradition Energy.
Light, sweet crude oil for June delivery on the New York Mercantile Exchange settled down 23 cents, at $96.39 a barrel, but up more than $1 from the session low of $95.35.
June Brent crude oil on the InterContinental Exchange shed earlier losses to settle 13 cents higher, at $104.47 a barrel.
Brent's premium to the U.S. benchmark was $8.08 a barrel at the settlement, up from $7.72 a day earlier, which was the lowest level since Jan. 20, 2011.
Brent's premium to the U.S. benchmark has narrowed considerably as rapidly rising domestic crude oil output makes its way to the key Gulf Coast refining region, displacing imports of Brent and similar crudes.
Refiners are shipping oil from the midcontinent to the Gulf by truck and rail, as well as pipelines, chipping away at the supply surplus in landlocked Cushing, Okla. Oil inventories at the hub, which is the delivery point for the Nymex futures contract, have fallen by 2 million barrels in the past two weeks. The year-on-year surplus has dropped to 5 million barrels from nearly 24 million barrels in January.
As the regional bottleneck eases, the Brent premium has narrowed to near $8 a barrel, from $17 a barrel early this year.
Crude prices had been under pressure from government data showing stocks rose modestly last week to the highest level since April 1981. The Energy Information Administration also said in its weekly oil supply/demand report Thursday that demand for gasoline, the most widely used petroleum product in the nation, dropped by 400,000 barrels a day last week from the year-earlier level. The 4.7% drop was the biggest at the early May start of the driving season since 1994.
But traders said there is widespread hope that increasing refinining activity will reduce the deep inventories and that a pickup in the economy will boost demand for refined products, even as the EIA sees summer gasoline use slipping to a 12-year low in the peak spring-summer driving season.
In June, the EIA projects crude oil processing at refineries will average 15.6 million barrels, up about 440,000 barrels a day above current levels, and crude stocks will fall by about 12 million barrels by the end of June, to just below year-earlier levels. Stocks are now above the year-earlier level by 16 million barrels, or 4.2%.
Tim Evans, analyst at Citi Futures, warned that these expectations make for "a weak bullish arguement" because if fuel demand doesn't improve, the problem of high crude oil stocks is simply shifted in the refined products market.
June heating oil futures settled 2.19 cents higher, at $2.9366 a gallon, the highest level since April 10.
Reformulated gasoline blendstock futures for June delivery settled at the highest level since April 9, gaining 3.13 cents, to $2.8851 a gallon.
Copyright (c) 2013 Dow Jones & Company, Inc.
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