Potential for tighter U.S. oil rules, optimism over demand buoy crude
By Myra P. Saefong and Virginia Harrison, MarketWatch
SAN FRANCISCO (MarketWatch) — Crude-oil futures climbed toward $97 a barrel Tuesday, set to score their highest closing level in three weeks, supported by optimism about the U.S. economy, a higher price forecast from Barclay’s Capital and the potential for tighter domestic oil regulations.
Crude for August delivery CL1Q +1.98% was up $1.59, or 1.7%, to $96.52 a barrel on the New York Mercantile Exchange after tapping a high of $96.99. If prices close around these levels, it will mark the highest close since June 14.
Oil prices are finding support in part because of “fears of tighter regulations in the U.S.” inspired by a pipeline leak into the Yellowstone River,” said Phil Flynn, energy analyst at PFG Best, in a note.
Exxon Mobil Corp. XOM -0.42% said the pipeline that runs under the river near Billings, Mont., dumped up to 1,000 barrels of oil before the leak was discovered.
“Once again an avoidable oil disaster could provide some political cover for the Obama administration that has floundered and failed,” said Flynn. The administration “could try to use this incident to justify the policy of thwarting domestic oil production,” he said.
Meanwhile, analysts also said Barclay Capital’s higher forecast for oil prices boosted sentiment.
For 2012, Barclay’s raised its forecast for Brent crude by $10, to $115 a barrel, and its Nymex forecast by $4, to $110, according to the Associated Press.
Barclay’s also trimmed $6 from its 2011 estimate, to $100 a barrel, “but this is just largely an admission, that the market had already priced in, that they had overestimated this year,” said Matt Parry, chief economist at KBC Energy Economics.
“Further adding to the general re-emergence of bullish sentiment is the further digestion of last week’s strongly positive U.S. PMI number and the real surprise [of] how quickly the market has shrugged off the [International Energy Agency] stockpile release,” he said.
Overall, “oil’s basically going through a strong bull-market run, seemingly looking exceptionally resistant to prices that most thought would have derailed consumption by now,” he said.
Dollar dance
Oil prices tend to trade inversely to the dollar index DXY +0.38% , which measures the greenback against six major currencies, but a general optimism about the U.S. economy lifted both, said Michael Lynch, president of Strategic Energy & Economic Research.
“Fears of a double-dip recession seem to be fading,” he added.
Earlier in the session, oil dipped as low as $94.34 a barrel. Prices have lost more than 5% in the past month, on factors including the decision by the IEA to release 60 million barrels to offset Libyan supply shortages.
On the domestic side, the Department of Energy said last week that it had received more than 90 bids for the 30.2 million barrels it’s scheduled to release under the IEA plan. The department expects the contract process to be completed by July 11.
“In the coming week, we are monitoring the progress of IEA stock release. There are some concerns there is a lack of coordination and transparency outside the U.S., and the 60 million barrels that the IEA decided to release may not be absorbed by the market, due to the weak recovery,” said Chung Yang, oil analyst with Philip Futures in Singapore.
“There are concerns the [release] may create an oversupply situation in the market,” he said.
Rounding out action in the energy markets Tuesday, August heating oil HO1Q +1.16% added 2.69 cents to $2.95 a gallon and August gasoline RB1Q +0.40% traded at $2.98 a gallon, up 1.05 cents. August natural gas NG11Q -0.02% was the lone decliner, off 1 cent at $4.30 per million British thermal units.
Myra Saefong is a MarketWatch reporter based in San Francisco.
Virginia Harrison is a MarketWatch reporter based in Sydney. Sara Sjølin in New York contributed to this report.
