Oil rose to a two-week high in New York on signs of increased U.S. fuel demand after a government report showed inventories of diesel and heating oil fell in the world’s biggest crude-consuming nation. Futures advanced as much as 0.6 percent after the Energy Department said yesterday that U.S. distillate supplies declined 2.04 million barrels to 141.1 million last week, the lowest since April 2009. Fuel demand climbed 2.2 percent. Oil may rise to $106 a barrel in coming weeks as prices mirror an early-May pullback in 2010 that launched a rally during the rest of that year, Societe Generale SA said. “People are optimistic about a recovery even though the economics suggest otherwise,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who predicted oil will average $100 this year. “The fact that oil hasn’t broken through $95 on the downside is the key.” Crude for July delivery gained as much as 58 cents to $101.90 a barrel in electronic trading on the New York Mercantile Exchange, the highest since May 11. Prices were at $101.56 at 12:39 p.m. Singapore time, and have risen 42 percent in the past year. Brent crude for July settlement was unchanged at $114.93 a barrel on the London-based ICE Futures Europe exchange. The contract yesterday climbed $2.40, or 2.1 percent, to $114.93, the highest settlement since May 10. China Demand “Distillate stole center stage from gasoline on worries about surging demand in China and India,” said Phil Flynn, vice president of research at PFGBest in Chicago. China may face power shortages of 30 gigawatts during the summer, the China Electricity Council said last month. That has prompted the government to suspend diesel exports, as it seeks to increase supplies of the fuel for use in power generation. Heating oil futures in New York climbed for a third day, gaining 0.97 cent, or 0.3 percent, to $2.99 a gallon. U.S. gasoline stockpiles increased 3.79 million barrels to 209.7 million, the biggest addition since February, according to the Energy Department. They were forecast to rise 450,000 barrels, according to the median of 14 analyst estimates in a Bloomberg News survey. Crude oil supplies gained 616,000 barrels to 370.9 million. Stockpiles were forecast to decrease by 1.5 million barrels, according to the survey. Distillate consumption was at the highest level since the week ended April 15, the report showed. Gasoline use dropped 0.3 percent to 9.03 million barrels a day. Total fuel demand climbed 2.2 percent to 18.9 million barrels a day. Refineries operated at 86.3 percent of capacity, the most since Jan. 7. Dollar Weakens Crude also gained as the dollar declined, making commodities more attractive as an alternative investment. The Dollar Index, a measure of the greenback against six major currencies, fell today by 0.4 percent, the biggest decline since May 19. The Bank of England may raise interest rates after its economy expanded in the first quarter, which could be supportive for oil prices, according to Stephen Schork, Villanova, Pensylvania-based analyst at The Schork Group Inc. “This would put pressure on the Bank of England to ramp up interest rates which would, in turn, increase the strength of Sterling,” he said in today’s Schork Report. “A stronger sterling implies a weaker dollar, and a weaker dollar implies… that’s right, higher crude oil prices.” World Economy The Organization for Economic Cooperation and Development has maintained its forecasts for the world economy to expand 4.2 percent this year and 4.6 percent in 2012, and raised its expectations for U.S. growth to 2.6 percent this year from 2.2 percent predicted in November. Brent crude has advanced 22 percent this year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya, Iran and Syria. Yemen’s President Ali Abdullah Saleh said fighting could drag the country into civil war and warned that those who seek to disrupt security would be met with force. Brent, the European benchmark contract, traded at a premium of $13.59 a barrel to U.S. futures, little changed from yesterday. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb. 21. It averaged 76 cents last year. The Organization of Petroleum Exporting Countries will leave production quotas unchanged at its June 8 meeting in Vienna because there is enough oil to meet demand, Iraq’s Deputy Prime Minister Hussain al-Shahristani said yesterday. To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

Source