Oil Hits 12-Week High on Supply Drop, Stimulus Hopes
Oil prices jumped to a 12-week peak on Tuesday as falling North Sea output, support for more bond buying by the U.S. Federal Reserve and Middle East tensions lifted crude futures to a third straight higher settlement.
Posting their highest settlements since May 15, Brent, U.S. crude and refined products futures moved above key moving averages to add technical support to the day's bullish sentiment.
The second hurricane of the Atlantic storm season threatened Mexico and a fire damaged California's second-largest refinery, lending more support to oil futures.
"The news about the record low North Sea loadings got Brent going early and it has lifted everything else," said John Kilduff, partner at Again Capital LLC in New York.
"Also the Boston Federal Reserve president saying he is in favor of more bond buying revived hopes about more stimulus from the Fed," Kilduff added.
Brent September crude rose $2.45 to settle at $112 a barrel, best close since May 15, after surging past the front-month 200-day moving average of $111.28. The $112.56 intraday peak is the highest since prices hit $112.67 on May 15.
U.S. September crude rose $1.47 to settle at $93.67 a barrel, after eclipsing the 100-day moving average of $93.47 and having reached $94.42. The closing price and intraday peaks were the highest since May 15.
Brent's premium to U.S. crude <CL-LCO1=R> pushed back above $18 a barrel.
The North Sea production problems and potential threats to supply in the Middle East lifted the premium of Brent's front-month to the nearby contract <LCO-1=R> above $1.60 a barrel.
U.S. RBOB gasoline and heating oil settled at near $3 a gallon, pushing intraday above that level for the first time since May. Gasoline had already shot above its 100-day moving average of $2.9661 and heating oil above its 200-day moving average of $2.9921.
Products futures rallied in the wake of a fire at Chevron Corp's 245,000-barrel-per-day (bpd) refinery in Richmond, California, the state's second largest.
Boston Federal Reserve Bank President Eric Rosengren's statements in interviews saying that the Fed should start buying Treasury and mortgage-backed securities and continue doing so until the economy was back to full strength revived investor hopes for more stimulus.
Rosengren's remarks supported investor expectations that the Fed may yet act even though he is not a voting member this year on the Fed's policy-setting committee.
Oil's rally came as world stocks rose to a new three-month high and the euro gained versus the dollar as investors drew encouragement from signs that Europe is edging toward resolving its debt crisis even as the economic impact in the region worsens.
U.S. equities also rallied, with the S&P 500 above 1,400 for the first time since early May, bolstered by expectations the European Central Bank will act soon to contain the bloc's credit crisis.
EYES ON SUPPLY
North Sea crude oil output is set to fall to a record low of 720,000 barrels per day (bpd) in September, adding to supply tightness with the European Union's embargo on Iranian oil now in its second month.
Asia is set to import record volumes of crude from West Africa in 2012 as increasing supplies of high quality crude drive down export prices and many buyers seek an alternative to Iranian barrels.
Syria's embattled President Bashar al-Assad won a pledge of support on from Iran as his forces tried to choke off rebels in the northern city of Aleppo. Shown on television meeting a senior Iranian official, it was Assad's first broadcast appearance in two weeks.
Hurricane Ernesto, the Atlantic season's second hurricane, was forecast to move across the Yucatan Peninsula on Tuesday and early Wednesday.
The U.S. Energy Information Administration lowered its 2012 and 2013 forecasts for crude oil production from non-OPEC countries in the EIA's monthly report and raised its demand outlook for those years.
Ahead of weekly snapshots of U.S. oil inventories, crude stocks were expected to have dipped 300,000 barrels last week, with gasoline stocks dropping 1.1 million barrels, according to Reuters survey of analysts on Tuesday.
The report from industry group the American Petroleum Institute is due at 4:30 p.m. EDT (2030 GMT) on Tuesday.