Oil futures rose on Monday, the first day of the third quarter, with gains in U.S. crude outpacing the rest of the oil complex and pushing the U.S. contract's discount to Brent to a 2-1/2 year low amid a broad commodities rally.
A bullish U.S. equities market, growth in U.S. manufacturing and the impact of Canadian pipeline problems on U.S. inventories helped lift U.S. crude.
Brent's premium to U.S. crude has steadily narrowed to hit a low Monday of $4.75 per barrel, its lowest level since early January 2011 and down from its 2013 high of over $23 hit in February.
The spread move came after BP Plc announced it completed the commissioning and start-up of a new 250,000 barrel-per-day (bpd) crude distillation unit at its 413,000 bpd Whiting, Indiana, refinery.
The start-up is expected to help draw down crude inventories at the Cushing, Oklahoma, delivery point for U.S. oil futures, helping to support the contract relative to Brent.
Traders were also watching news that Enbridge confirmed the restart of its 345,000 bpd Athabasca pipeline in Alberta, Canada, on Monday. Enbridge shut the line, as well as the 600,000 bpd Waupisoo pipeline pipeline in late June after a spill at a nearby pipeline.
Traders and analysts said the shutdown is believed to have drawn on U.S. inventories in the week through June 28.
Brent crude for August settled up 84 cents at $103 a barrel. U.S. crude settled up $1.43 at $97.99, leaving the spread at $5.01.
U.S. crude settled up $1.43 at $97.99 a barrel.
Overall, commodity and equities markets gained after data showed U.S. manufacturing bounced back in June and construction spending hit a four-year high. Gold rebounded from its worst quarterly decline on record, rising 1.5 percent, while copper jumped 3 percent.
"We would expect stronger demand here 1/8in the United States 3/8 because of bullish manufacturing numbers," said Phil Flynn, energy analyst with the Price Futures Group in Chicago, Illinois.
"U.S. demand has probably given West Texas Intermediate, a benchmark for U.S. crude, the edge today," Flynn said, noting he expected the spread between the two benchmarks to ultimately reverse to its historic norm as the U.S. continues to ramp up production and find new ways to get it to market.
Encouraging manufacturing data from Europe, a supply disruption in the North Sea and concerns over political turmoil in Egypt gave Brent a hand.
A key survey of euro zone manufacturing suggested the bloc's economy had stabilized and would probably grow this quarter, raising hopes of a revival in European oil demand.
The more upbeat European survey balanced PMIs from China and India showing signs of cooling economic growth. China's official PMI report was better than expected.
"Almost the entire commodities sector is up today on the manufacturing figures," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt, Germany.
"There is a perceptible sense of relief that the Chinese PMI did not slide below the 50 mark as some people had feared."
Brent's premium to U.S. crude narrowed to $5.24 per barrel, its lowest level since January 2011, from its 2013 high of over $23 in February.
"There's a global economic malaise holding down Brent, and peak refinery turnaround season in the U.S. so there's a strong demand for oil here," said Stephen Schork, editor of The Schork Report in Villanova, Pa.
Front-month Brent shed more than 7 percent in the second quarter ended in June, its third straight quarterly decline and the longest such stretch of losses in 15 years.
BP said it completed the commissioning and start up of a new 250,000 barrel per day (bpd) crude distillation unit at its 413,000 bpd Whiting, Ind., refinery.
Egypt's powerful armed forces gave Islamist President Mohamed Morsi a virtual ultimatum on Monday to share power, after millions of Egyptian citizens took to the streets on Sunday to demand his resignation.
"I think traders do remember that the Egyptian protests [of 2011] did lead to a supply issue out of Libya," said Andy Lebow, vice president at Jefferies Bache in New York.
Markets were watching the Fed nervously for indications on the future of its bond-buying program, which analysts say has helped support commodities.
A top Fed official signaled the U.S. central bank may move to roll back its bond purchases in its September meeting, a move that could strengthen the dollar. But the timing will also depend on the U.S. labor market, and investors are waiting for more clues from a jobs report on Friday.
Dollar-denominated commodities tend to move inversely to the greenback, and fluctuations in the currency over the past weeks have been a primary mover of oil prices. A weak jobs report would undercut the dollar again and lift Brent.
Jitters over the Fed's bond-buying program partly led hedge funds and other large speculators to slash their bets on rising U.S. crude oil prices in the seven days to June 25, regulatory data showed on Friday.
Uncertainty over the Fed's program and the slow-growth outlook helped to offset curtailments in supply that might have otherwise pushed up prices.