West Texas Intermediate crude traded near its highest closing level in three weeks before weekly government data on U.S. inventories amid signs the economic recovery in developed nations is gaining strength.
Futures were little changed in New York after rising for a third day to close at the highest level since Dec. 31.
Distillate stockpiles, including heating oil and diesel, will probably drop by 500,000 barrels, according to a Bloomberg survey before a report from the Energy Information Administration.
Bank of America Corp. (NYSE: BAC) predicted that WTI may soon advance to $100 a barrel because of a “tight” U.S. market. The International Energy Agency raised 2014 global oil demand forecasts on Jan. 21.
“Economic growth and oil consumption are picking up this year,” said Michael Poulsen, an analyst at Global Risk Management Ltd. in Middelfart, Denmark.
While “improved global growth expectations leading to increased oil demand is potentially bullish for oil,” prices will probably remain at around current levels for the rest of this month, he said.
WTI for March delivery was 37 cents higher at $97.10 a barrel in electronic trading on the New York Mercantile Exchange as of 1:09 p.m. London time.
The contract rose $1.76 Wednesday, the biggest gain since Dec. 3, to $96.73 a barrel. The volume of all futures traded was about 43 percent above the 100-day average. Prices have lost 1.5 percent so far this year.
Brent for March settlement was down 22 cents at $108.05 a barrel on the London-based ICE Futures Europe exchange.
The difference between Brent and WTI shrank to as little as $10.83 a barrel, its narrowest since Dec. 20, according to a contract on ICE used to trade the spread.
The March WTI contract is trading at 47 cents more than April, after developing a premium on Jan. 17 for the first time since October. A market in which short-term supplies cost more than later deliveries is said to be in backwardation.
WTI will increase to $100 as the start of a crude pipeline from the U.S. storage hub at Cushing in Oklahoma to refineries on the Gulf Coast relieves any glut in the Midwest, Francisco Blanch, head of commodities research at Bank of America in New York, said in the report.
The subsequent build-up of supplies at the Gulf Coast will prevent additional price gains, he said.
The Gulf Coast line, also known as the southern leg of the Keystone XL pipeline, was initially flowing at 288,000 barrels a day and transporting entirely U.S. light, sweet grades to Nederland in Texas from Cushing, according to operators TransCanada Corp. (NYSE: TRP).
U.S. crude inventories expanded by 4.86 million barrels in the week ended Jan. 17, the American Petroleum Institute reported yesterday.
Supplies rose 1.15 million barrels to 351.4 million last week, according to the median estimate of 10 analysts survey by Bloomberg before the EIA data Thursday.
Distillate supplies dropped by 2.29 million barrels last week, the API said.
Gasoline stockpiles rose 1.1 million barrels, said the industry group in Washington. Inventories are projected to have climbed by 1.75 million barrels, a fourth weekly gain, the survey showed.
The API collects supply information on a voluntary basis from operators of refineries, bulk terminals and pipelines.
The government requires that reports be filed with the EIA, the Energy Department’s statistical arm, for its weekly survey.
Oil slipped earlier Thursday after a preliminary Purchasing Managers’ Index in China, the world’s second-biggest oil consumer, declined more than estimated in January to the lowest level in six months, according to a private gauge.
China’s PMI for January fell to 49.6, HSBC Holdings Plc (NYSE: HSBC)and Markit Economics said Thursday.
That’s down from a median estimate of 50.3 in a separate Bloomberg survey of economists and lower than a final figure of 50.5 in December. A reading below 50 indicates contraction.