Oil prices edged toward a new two-month high near $57 a barrel on Friday, extending this week's rally as demand in the world's largest consumer showed little signs of succumbing to near record fuel costs. US crude oil moved up 15 cents at $56.73 a barrel in trading, taking this week's gains to 6 percent. Prices had hit $56.90 on Thursday, they're highest since April, when the frontmonth contract reached an all-time peak of $58.28.
Prices rallied as fresh US data showed consumption of transport fuels was still brisk, raising concerns about refiners' ability to meet peak summer gasoline demand while also building enough heating and diesel inventories for later in the year.
"Some sections of the market expected high prices to start having an effect on (US) economic performance, but data coming out recently has shown it's holding up quite well and people have not significantly reduced consumption of oil," said Daniel Hyenas, resources analyst at ANZ Institutional Banking.
Demand for gasoline over the past four weeks is up 3 percent from a year ago, while consumption of distillates diesel, heating oil and jet fuel has risen 6.5 percent, US government data showed this week.
Such sharp growth rates coupled with strong demand from China has put added strain on the world's limited refining capacity, triggering concerns that supplies particularly of distillates will be tight during the winter, when demand peaks.
Heating oil prices this week traded at a rare 11-cent premium to gasoline, but US weekly inventory data showing a decline in gasoline stocks swung the focus back to motor fuel, which accounts for over 10 percent of global oil demand.
With US crude oil inventories still nine percent above last year dealers are less worried about raw material supplies, but a thin cushion of spare production capacity makes the prospect of an unexpected outage a continuing concern.
"The figures still suggest there's enough (crude) supply in the market, but there's not too much slack so obviously that's keeping price high," said Hyenas.
The Organisation of the Petroleum Exporting Countries (Opec) this week agreed to raise its production ceiling by 500,000 barrels per day (bpd) from July and put another 500,000 bpd on the market soon if prices remain high.
But Saudi Arabia, the only member with significant production capacity to spare appeared wary of forcing more crude onto refiners who say they have more than enough.
"We are ready to supply more crude," Saudi Oil Minister Ali al-Naimi told Reuters. "But get us the customers." The United States has not built a new refiner since 1976.
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