A surge in gasoline futures to a six-month high helped oil prices rise for the third straight session on Tuesday, on a combination of rising expectations for economic growth and demand from drivers. A soft dollar was supportive, as was cold weather, which lifted heating fuels and forecasts that US crude oil inventories fell last week.
Traders noted that the market was prone to volatility, given thin trading volumes and position squaring before the year end holidays. US crude for February delivery rose 40 cents to $89.77 a barrel at 12:46 pm EST (1746 GMT), trading between $89.06 and $89.97. Traders were watching $90 per barrel, which the market had recently tested as resistance, and support around $88 a barrel.
Crude prices reached a 26-month high of $90.76 on December 7. The February contract took over the front-month position after the January contract expired and went off the board at $88.81 a barrel on Monday. Total US crude futures trading volume was thin, just above 212,350 lots during the noon hour in New York, well below the 678,549 30-day average.
ICE Brent crude for February rose 48 cents to $93.22 a barrel, having moved as high as $93.43. "The oil market is currently focusing on cold weather and better-than-expected US economic data for now," said James Zhang at Standard Bank in a note. But Zhang also said there was potential for concerns about the eurozone to drive investors away from riskier assets, such as oil.
"The eurozone debt crisis continues to spook investors periodically, with the yield of eurozone peripheral government bonds moving up again in recent days," he said. Cold weather has driven up heating fuel demand in northern Europe and the United States. US heating oil demand was expected to average 4.6 percent above normal. Harsh winter weather in China, the world's second-biggest oil consumer after the United States, has also stoked demand.
Kerosene imports for November hit an all-time high of 861,388 tonnes, up nearly 61 percent a year ago, official customs data showed on Tuesday. Expectations that driving demand over Christmas and new year holidays would boost US consumption lifted US gasoline futures 2.16 cents to $2.3994 a gallon. Gasoline hit $2.94, the highest since May 4, when futures reached $2.4315.
Gasoline supplies have been tight in the New York Harbor, delivery point for US gasoline futures contract and prices have been supported by the shut gasoline-making unit at the Hovensa LLC refinery in St. Croix, US Virgin Islands and the shut arbitrage window for gasoline shipments from Europe.
Ahead of weekly oil inventory reports, US gasoline stockpiles were expected to have risen last week, according to a Reuters survey of analysts on Monday. But crude oil stocks and distillates, including heating oil and diesel fuel, were forecast to be lower, US oil inventory data from the American Petroleum Institute is scheduled to be released later on Tuesday, with the government's report following on Wednesday.