August 15, 2012 / 3:11 AM / 5 years ago

Brent ends above $116 to three-month high on tight supply

Hong Kong-flagged oil tanker "Yangtze Bravery" sails past the Raffles Lighthouse in southern Singapore April 18, 2012. REUTERS/Tim Chong

NEW YORK (Reuters) - Brent crude oil futures closed above $116 a barrel at the highest level in more than three months on Wednesday, as a sharp drawdown in U.S. crude stockpiles and expectations for lower North Sea oil output painted a tighter supply picture on both sides of the Atlantic.

Fears of supply disruptions as Middle East tensions festered, as well as hopes for further stimulus from major central banks to support the weakening global economy, added lift to oil futures.

U.S. crude oil inventories dropped 3.7 million barrels last week, the third straight week of drawdowns, according to the U.S. Energy Information Administration. A Reuters poll of analysts had forecast a decline of just 1.7 million barrels.

A steep drop in U.S. gasoline stocks due to a series of refinery outages lifted gasoline futures to their highest intraday level since May, gaining nearly 3 percent to lead the petroleum complex.

While the crude stock draw was larger than expected, “more importantly, we see the large dip in gasoline stocks ready to push us higher into the second half of summer,” said Carl Larry, president of Oil Outlooks in New York.

In London, September Brent crude posted a session high at $116.72 a barrel and closed at $116.25, up $2.22 or nearly 2 percent. It was the highest settlement for front-month Brent since May 2.

U.S. September crude oil settled at $94.33 a barrel, gaining 90 cents, the highest settlement for front-month U.S. crude since May 14, after hitting a session high of $94.90.

U.S. gasoline stocks fell 2.4 million barrels last week, greater than the 1.5-million-barrel drop predicted. The four-week average demand for refined products in the United States rose to 19.3 million barrels per day, the highest since early September 2011, the EIA data showed.

U.S. September gasoline closed at $3.0840 a gallon, rising 8.26 cents, the highest settlement for front-month RBOB since May 1. U.S. September oil futures settled at $3.0852 a gallon, gaining 5.06 cents, the highest close for front-month heating oil since May 3.

An attendant prepares to refuel a car at a petrol station in Rome January 4, 2012. REUTERS/Max Rossi

Brent crude oil’s premium to U.S. crude climbed to $21.92 at settlement, from $20.60 on Tuesday, marking the highest level since October 21 last year, squeezed by maintenance in North Sea production on which the benchmark’s price is calculated. The premium rose to an intraday high of $22.12.

“It’s back to the Brent/WTI spread trade, with it stretching back above $22 intraday,” said Richard Ilczyszyn, chief market strategist at iiTrader.com in Chicago.

Ilczyszyn noted increased political risk with news Wednesday from the Saudi state news agency that Saudi Arabia had ordered its citizens to leave Lebanon immediately. The agency issued an alert, but did not elaborate.

The pace of trading further picked up, raising Brent’s total trading volume to 20 percent above its 30-day average and U.S. crude dealings rose 34 percent above its 30-day average, Reuters data showed.

Overbought signals persisted for Brent, with the 14-day Relative Strength Index (RSI) rising to above 76, according to Reuters data. U.S. crude’s RSI was near 64, up for a third straight day.

STIMULUS WATCH

European Central Bank President Mario Draghi has said that the ECB will flesh out plans to bring some stability back to the strained euro zone bond markets early next month, driving hopes the bloc could start to right itself again in the second half of the year.

China was also expected to address weakening growth levels, with expectations that it would launch more infrastructure projects, a move that is expected to raise demand for metals and energy.

In the U.S., consumer prices were flat in July for a second straight month and the year-over-year increase was the smallest in more than 1-1/2 years, giving the Federal Reserve room to ease policy further to tackle high unemployment.

Additional reporting by Robert Gibbons in New York, Manash Goswami and Elizabeth Law in Singapore; Editing by Marguerita Choy and Alden Bentley

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