Oil rose by almost 2 percent on Monday toward $75 a barrel, snapping a four-day slump, tracking broad gains in equity markets that were buoyed by optimism about the strength of the economic recovery. Oil also drew strength from an expected drop in crude oil inventories in the United States following the outage on one of the main pipelines delivering crude from Canada last week.
The S&P 500 hit a four-month high and all three major indexes rose 1 percent as Wall Street sought to extend a three-week rally ahead of Tuesday's monetary policy meeting by the Federal Reserve. "The petroleum markets are considering the upside in early trading on Monday, encouraged by an upturn in the S&P 500," Tim Evans, analyst at Citi Futures Perspective in New York, said in a research note.
US crude for October delivery rose $1.20 to settle at $74.86 a barrel, trading from $73.32 to $75.45. The October contract expires on Tuesday. US November crude closed up $1.27, or 1.7 percent, at $76.19 a barrel. The rally had little volume behind it, with the total number of contracts trading hands about 25 percent below the average volume over the last 30 days, according to Reuters data.
ICE Brent for November closed up $1.10 to $79.32. Trading sources also said crude futures were being supported by expectations that the week-long shut down of Enbridge Inc's Canada-to-US crude oil pipeline restarted on Friday may have pushed US crude inventories lower last week. A preliminary Reuters poll of 10 oil tracking analysts showed US crude stocks may have fallen last week by 1.9 million barrels because of the Enbridge outage, though traders may be inclined to look past this week's figure given the short-term nature of the supply disruption.
Gasoline stocks are expected to have fallen by 100,000 barrels, while distillate stocks, which include heating oil and diesel, are expected to have risen by 300,000 barrels. An official designation of the end of the US recession also added to the optimistic sentiment, traders said. Oil prices shrugged off a downbeat assessment from the Organisation for Economic Co-operation and Development, which said on Monday a US recovery was under way but at such a moderate pace that high unemployment will persist for some time.
Since May, crude prices have been hemmed in between the $64.24 intraday low on May 20, the weakest front-month price since July 30, 2009, and the 2010 peak of $87.15 hit May 3. Investment bank Societe Generale said rallies in crude have been stalled than stronger than expected non-Opec supply and high stocks in industrialised countries. As a result the bank cut its average price forecast for crude oil next year by $7 to $85 at the end of last week.