Oil rises to two-year high near $91 a barrel

SINGAPORE (AP) – Oil prices rose to fresh two-year highs near $91 a barrel yesterday in Asia as a US stock market rally boosted optimism that demand will improve.

Benchmark oil for February delivery rose as high as $90.79 a barrel, the highest since October 2008, and was up eight cents to $90.57 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 66 cents to settle at $90.48 on Wednesday.

The Dow Jones industrial average and the S&P 500 index both rose Wednesday to their highest levels since July 2008 after the Commerce Department said the US economy rose in the third quarter at an annual rate of 2.6 percent, a slight increase from its earlier estimate.

“The price of crude is highly connected to the direction of the equities markets and confidence in a global recovery,” Sander Capital Advisors said in a report. “When equities go up, it tends to mean confidence is up and thus consumption is up.”

Crude was also buoyed by falling US crude supplies, which suggest demand may be improving. The Energy Department’s Energy Information Administration said Wednesday that crude supplies dropped by 5.3 million barrels last week from the week before. The EIA said last week that supplies dropped 9.9 million barrels the previous week, the biggest drop in eight years.

“The market at its tightest in well over two years,” Barclays Capital said in a report. “At the start of the year, even the most optimistic view on the oil market would not have expected such a barrage of upside demand surprises and such a quick drawdown of inventories.”

Oil prices were already trading at two-year peaks on the back of cold weather in the northern hemisphere, the weak dollar and bullish Chinese energy demand, analysts said.

“The prolonged cold snap in Europe and the US northeast is still supportive,” said VTB Capital commodities analyst Andrey Kryuchenkov.

Icy weather across Europe and northeastern US states — which forecasters said would last until the end of the year — lifted prices as demand for heating oil increased.

“Oil prices remain supported on cold weather and strong demand indications, with Chinese oil demand, along with gasoline, diesel and jet fuel demand, surging to record highs in November,” Barclays Capital said in a report.

In other Nymex trading in January contracts, heating oil rose 0.6 cent to $2.53 a gallon, gasoline futures added 0.1 cent to $2.43 a gallon and natural gas dropped 0.4 cent to $4.11 per 1,000 cubic feet.

In London, Brent crude rose four cents to $93.69 a barrel on the ICE Futures exchange.