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US crude oil inventories plunged about 10 million barrels for a second week in a row, highlighting the unexpectedly rapid tightening of the market after three years of pent-up supply due to a dramatic resurgence in domestic production.
Signs of the strongest refinery demand in six years and a more than 2 percent increase in gasoline demand from a year ago also aided gains, with New York Harbor gasoline futures topping USD 3 per gallon for the first time since March.
The onset of summer, the restart of BP's 400,000-barrel per day Whiting refinery and commissioning of new pipelines draining extra crude away from the New York Mercantile Exchange's delivery point at Cushing, Texas, have helped drain swollen supplies in the Midwest, causing an abrupt narrowing of the spread between US WTI and Brent futures.
"Fundamentals have been the weak point in the last year, but these last two weeks of draws suggest that supplies seem to be tightening," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
US crude has outperformed Brent for nine out of the past ten sessions, narrowing their spread to a 2-1/2 year-low of USD 1.82 during intraday trading and to USD 1.99 at the market close.
US crude settled up USD 2.99 at USD 106.52 a barrel, posting its biggest daily rise since May and its largest three-week increase since March 2011.
Prices dipped only marginally after the release of minutes from the Federal Reserve meeting in June -- an event that set off a rout in many financial markets over fears that Fed Chairman Ben Bernanke would begin tapering stimilus measures -- which showed many officials wanted more reassurance the employment recovery was on solid ground before a policy retreat.
GASOLINE TIGHTENS
As the US entered the summer driving season in earnest, gasoline stocks fell 2.6 million barrels as demand rose 2.5 percent from a year ago, Energy Information Administration (EIA) data showed. Refiners processed the most crude in six years.
"Given the high utilization rate and what's happening in Cushing with the effect of the rail transport and the pipelines, WTI is reacting strongly," said John Kilduff, a partner at Again Capital LLC.
Brent gained 70 cents to end at USD 108.51, its upside limited by concerns about sluggish growth in China, which reported lower-than-expected imports and exports and a 1.4 percent drop in crude imports for the first half of the year.
"While oil demand in the US appears to be reviving, current figures from China point to slowing demand dynamism there," a Commerzbank research note said.
Despite disappointing data from China, OPEC expects a stronger economy to boost world oil demand by 1 million bpd in 2014, the highest growth since 2010.
In its monthly report, the Organization of the Petroleum Exporting Countries said its share of the world market will decline next year due to rising US shale oil supplies.
Political risks were also supporting prices, and investors continued to keep watch on Egypt.
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