WASHINGTON (AFX) - Oil prices rose by more than $1 a barrel on Thursday, climbing on the back of a rally in gasoline futures, which settled at a nine-month high.
The approach of the Independence Day holiday, traditionally a busy period for U.S. drivers, was a major factor behind the market's psychology, brokers said.
'Demand is up,' said Phil Flynn of Alaron Trading Corp. 'And it's going to be a four-day holiday this year' because July 4 falls on a Tuesday.
Flynn said energy markets also responded to the Federal Reserve's apparent softening of its stance on future interest rate hikes, a signal that sent stock prices surging as well. 'The Fed decision is bullish for all the commodities,' Flynn said.
Light sweet crude for August delivery rose $1.33 to settle at $73.52 a barrel on the New York Mercantile Exchange, where gasoline futures surged 8.89 cents to $2.2948 a gallon. It was the highest settlement price for front-month gasoline futures since Sept. 29, when the closing price was $2.37 shortly after Hurricane Rita put several Gulf Coast refineries out of commission.
Brent crude futures on the ICE Futures exchange in London climbed $1.47 to finish at $72.88 a barrel.
Gasoline futures have risen by more than 15 percent over the past eight trading sessions. Traders said one spark for the buying was the closure of the Calcasieu Ship Channel on the Gulf Coast, where a cleanup is under way following an oil spill at a Citgo Petroleum Corp. refinery in Lake Charles, La. The channel was partially reopened Wednesday, though normal traffic has yet to resume.
Brokers said the market is also reacting to the fact that gasoline demand in the U.S. continues to rise in spite of soaring pump prices. Over the past four weeks, daily gasoline demand was up 0.9 percent from a year ago at 9.4 million barrels a day, according to government statistics. The average retail price of regular gasoline nationwide is $2.87 a gallon.
And on Wednesday, the U.S. Energy Department reported that gasoline supplies shrank last week for the first time in more than two months.
Oil prices are 23 percent higher than a year ago, driven higher by strong demand and a limited supply cushion -- conditions that are worrisome to traders given the backdrop of considerable geopolitical uncertainty, such as violence in Nigeria, the war in Iraq and Iran's diplomatic showdown with the West over its nuclear program.
Washington has warned Iran that it could face political and economic sanctions before the U.N. Security Council if it doesn't stop its nuclear activities, which the United States and its European allies say is an attempt to produce nuclear weapons. Tehran says the uranium will be used only for a peaceful energy program.
Iran is OPEC's No. 2 producer of oil, and traders are worried about the outlook for those supplies. In its weekly petroleum report, the U.S. Energy Department said Wednesday that commercial inventories of crude oil declined last week by 3.4 million barrels to 343.7 million barrels, or 4 percent above year ago levels. Supplies of gasoline shrank by 1 million barrels to 212.4 million barrels, or 2 percent below year ago levels.
'The fact that there is an inventory drop is in itself no big deal because it's the kind of thing you would expect at this time of the year,' said John Vautrain, energy analyst for Purvin & Gertz in Singapore. He added that high fuel prices will not keep Americans from traveling in the summer.
In other Nymex trading, heating oil futures rose by more than 5 cents to settle at $1.9876 per gallon, while natural gas futures slid 2.5 cents to $6.135 per 1,000 cubic feet.
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