NEW YORK (Reuters) - Oil jumped back to positive territory in late trading on Wednesday, ending the month sharply higher as the Federal Reserve said that the U.S. economy expanded modestly in January through mid-February as hiring increased across several of its districts.
The Fed’s Beige Book report, a snapshot of U.S. economic activity in its districts, was upbeat enough to erase session losses that hit crude oil futures on both sides of the Atlantic.
Oil futures recovered after two straight days of losses. In the morning session, prices fell after U.S. government data showed a larger-than-expected increase in crude oil inventories last week, at a time when refinery activity slowed sharply.
“The Beige Book report certainly was positive for oil futures,” said Phil Flynn, analyst at PFGBest Research in Chicago.
U.S. crude for April delivery settled at $107.07 a barrel, gaining 52 cents, after trading between $104.84 and $107.43.
For the month, U.S. crude gained $8.59, or 8.7 percent, rebounding after two straight months of losses. February’s gains were the best for a month for U.S. crude since October, when prices rose 17.7 percent.
In London, ICE April Brent crude settled at $122.66, rising $1.11, after trading from $120.50 to $123.20.
Brent crude rose $11.68, or 10.5 percent for the month, its best monthly performance since February last year, when prices rose 10.68 percent.
Brent’s premium against U.S. crude widened to $15.59 at the close, from $15 on Tuesday.
Trading volume for U.S. crude was 6 percent below its 30-day average, according to Reuters data. Brent crude volume was up 23 percent from its 30-day average.
In early trading, prices rose on news that the European Central Bank had allocated more than $500 billion for cheap loans, easing some worries about the euro zone debt crisis.
Worries that global oil markets might be short of fuel as the United States and Europe impose sanctions on Iran also kept oil futures supported.
U.S. crude inventories leaped 4.16 million barrels in the week to February 24, up for a second straight week, the U.S. Energy Information Administration said, dwarfing analysts’ forecast in a Reuters poll for a 1.1 million barrel rise. <EIA/S>
At the Cushing, Oklahoma, delivery hub for U.S.-traded oil futures, crude stockpiles rose 1.65 million barrels to 33.81 million barrels, the highest since August. Crude imports edged up 96,000 barrels per day to 9.15 million bpd.
“Demand remains weak year-over-year given the warm weather dragging on heating oil demand and high gasoline prices which some consumers have adjusted to,” said Chris Jarvis, president at Caprock Risk Management, Rye, New Hampshire.
“Macroeconomic data and geopolitical tensions will remain the key drivers of energy prices for the foreseeable future.”
The U.S. economy grew a bit faster than initially thought in the fourth quarter last year and manufacturing activity in the U.S. Midwest rose to a 10-month high this month. [ID:nL2E8DT1MF]Overall, analysts said the reports were price supportive, despite an initial lukewarm reaction from investors.
Market bulls’ sentiment appeared to have been tempered by comments from U.S. Federal Reserve Chairman Ben Bernanke, who told U.S. lawmakers that “the job market is far from normal” and that “continued improvement ... is likely to require stronger growth in final demand and production.”
A Reuters survey showing that output from the Organization of the Petroleum Exporting Countries rose this month to the highest since October 2008 due to a further recovery in Libya’s production and higher supplies from Angola and Saudi Arabia, was also bearish for crude.
Concerns that sanctions imposed by the U.S. and a slated ban on Iranian oil by the European Union that becomes effect in July would disrupt supply and harm the global economy have led U.S. Energy Secretary Steven Chu and Treasury Secretary Timothy Geithner to say that the United States was considering a release of crude from the Strategic Petroleum Reserve (SPR).
But on Wednesday, Executive Director Maria van der Hoeven of the Paris-based International Energy Agency said there have been no discussions within the IEA about the release of strategic reserves.
So far, the tightening sanctions that aim to choke Iran’s nuclear program by cutting revenues from its oil industry have led the Islamic Republic to say on Tuesday it will take payment from its trading partners in gold instead of dollars.
Western sanctions have already disrupted Iran’s oil flows as U.S. and European companies refuse to insure deliveries, according to a U.S. EIA report on Wednesday obtained by Reuters.
Oil markets, which have become increasingly tight in the last two months, could worsen if Iran shuts in oil, the report said.
Additional reporting by Robert Gibbons and Eileen Houlihan in New York, Simon Falush in London, Manash Goswami in Singapore; Editing by Marguerita Choy and Bob Burgdorfer