Traders also weigh warm weather forecasts, Iran tensions
Crude-oil futures closed above $60 a barrel Tuesday, as traders eyed developments in Iran and braced themselves for weekly data on supplies for some measure of how the chilly weather of the past week has impacted higher-than-normal inventories.
Analysts are expecting a solid draw in supplies of distillates, which include heating oil. The data comes amid forecasts for a thaw and warmer-than-average temperatures across the northeastern U.S. from now until March.
"Oil markets are expecting supply drawdowns from recent cold weather and refinery shutdowns in California and Texas," said Kevin Kerr, editor of Global Resources Trader, a newsletter published by MarketWatch.
Traders are also worried that with another U.S. carrier steaming toward the Straits of Hormuz, "anything could happen," said Kerr. "The tension in the Middle East is mounting" he added.
Crude for April delivery closed up $1.22 at $60.07 a barrel on its first day of trade as the front-month contract on the New York Mercantile Exchange. Prices have struggled to hold above $60 in recent weeks. It's the first time a front-month contract has closed above $60 this year, although the April contract closed there just a week ago. The March contract expired Tuesday down $1.32 at $58.07 as warmer weather triggered a reversal of Friday's short-covering rally.
The thaw sets in
Forecasts are promising above-normal temperatures for all of the U.S. except parts of the South through March, while April is expected to be warmer than average in the Northeast and the Northwest.
The National Weather Service said it expects heating demand to be about 11% below normal this week as the cold snap gives way to milder weather.
"Warmer weather trends across the U.S. mid-continent and North East are weighing on sentiment but continued market tightness and growing concerns over the situation in Iran should keep the downside limited," said Costanza Jacazio, analyst at Barclays Capital. In the latest news from Iran, President Mahmoud Ahmadinejad said he is aiming to achieve nuclear capability as soon as possible, even to the exclusion of everything else, the BBC reported.
The president made this latest pronouncement to the Iranian Isna news agency. It coincides with a United Nations deadline for Tehran to freeze its uranium enrichment activities or face further sanctions.
Iran holds fast
Ahmadinejad has made a series of comments on Iran's nuclear program in the past several days and even said Tuesday he is open to resuming talks on the program with western powers as long as no preconditions are imposed.
The U.N. nuclear watchdog, the International Atomic Energy Agency, is expected by Thursday at the latest to find Iran has defied its ultimatum by failing to meet the Wednesday deadline - further supporting oil prices.
Traders are now awaiting the release of weekly data on supplies of oil and its byproducts to see if the cold snap was effective in reducing what have been unusually high inventories after a mild winter. The data will be released a day later than usual because of the Presidents Day holiday.
Analysts at Fimat USA are expecting the data to show crude stocks rose by 1.1 million barrels in the latest week. Distillates, which include heating oil and jet fuel, are expected to have fallen by 3.3 million barrels, while gasoline supplies are expected to rise by 900,000 barrels. James Williams, energy economist at WTRG Economics, said fundamentals do not support today's gains, arguing that even if the supply data meet expectations, inventories are still comfortably above the high end of their 5-year range.
Iran is also a false reason for gains.
"Contemplated sanctions do not involve shipments of Iranian crude oil," said Williams.
"The U.S. and China, both members of the Security Council, are respectively the largest and fastest growing importers of crude oil. They won't embargo oil. Iran's oil exports are its lifeblood and it is equally unlikely to halt the flow of oil."
Other energy futures reversed early losses to close higher. Reformulated gasoline finished up 5.56 cents at $1.7047 a gallon. Gasoline continues to find support from a glitch at a Valero refinery after a fire earlier this week. On Wednesday, Teppco Partners said a leak has held up 60,000 barrels a day of refined products shipments, Dow Jones Newswires reported.
Heating oil closed up 3.66 cents at $1.6816 a gallon and natural gas ended up 6.10 cents at $7.646 per million British thermal units.
Indexes that track oil shares were higher. The Philadelphia Oil Services index ($OSX :197.92, +3.65, +1.9% ) was down 1.7% at 197.63, while the CBOE Oil Index ($OIX : 632.65, +3.49, +0.6% ) was up 0.6% at 632.65.
In the metals sector, gold rallied after data showed consumer inflation heated up in January. See Metals Stocks. Taking a measure of the broader commodity sector, the DJ AIG Commodity index (26099104 : 0.00, 0.00, 0.0% ) finished up 1.6% at 169.84.
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