Crude oil prices settled up 3 percent on Thursday, hitting 2015 highs, while U.S. gasoline reached 5-month peaks after Saudi Arabia and its allies maintained a bombing blitz in Yemen that heightened concerns about the security of Middle East oil supplies.
Oil buyers also stoked the rally with bets that U.S. crude output will shrink further after two straight weeks of declines.
Continue Reading Below
The weak dollar also supported oil and other dollar-denominated commodities. The euro gained more than 1 percent against the greenback, boosting oil demand from holders of the European currency.
U.S. crude settled up $1.58, or 2.8 percent, at $58.02 a barrel. Its session peak of $58.41 was a 2015 high.
U.K. North Sea Brent, a global benchmark for oil, finished up $2.12, or 3.3 percent, at $64.85 a barrel. Its session high was a 2015 peak of $65.58.
Front-month U.S. gasoline settled up 7 cents, or 4 percent, after hitting an intraday high above $2 a gallon, the peak since Nov. 26.
"The Saudi escalation of its Yemen campaign is producing exactly the kind of geopolitical tensions oil is known to rally for," said Gene McGillian, senior analyst at Tradition Energy, an oil markets advisory in Stamford, Connecticut.
"You also have the assumption that U.S. production will continue to decline from cutbacks in oil rigs count and exploration expenditure, though I'm not too much of a believer in such improving fundamentals," he said.
Warplanes from a Saudi-led coalition pounded Houthi militiamen and military bases in Yemen, residents said, two days after Riyadh announced it was ending the blitz.
The Bab el-Mandeb Strait on Yemen's southern coast controls access to the Red Sea, Suez Canal and the ports of western Saudi Arabia, the world's biggest crude exporter.
U.S. oil production notched its third weekly decline in four weeks, the U.S. Energy Information Administration said.
Oil prices have risen as much as $10 this month due to worries about Middle East supplies and signs of stronger global demand, particularly for automotive fuels.
But so far, world supplies of crude are still in a glut. Latest estimates put production by the Organization of the Petroleum Exporting Countries at almost 2 million barrels per day above demand for its oil in the first half.
U.S. government data on Wednesday showed domestic crude stockpiles rose by 5.3 million barrels last week, well above a forecast 2.9 million barrels, to a record 489 million barrels.
(By Barani Krishnan; Additional reporting by Christopher Johnson in London and Himanshu Ojha in London and Jacob Gronholt-Pedersen in Singapore; Editing by Richard Chang; Editing by Dale Hudson, William Hardy and David Gregorio)