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US oil spikes to 16-month high, ends above $108

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An unexpected drop in jobless claims helped spur U.S. oil to a 16-month high on Thursday, narrowing its differential with Brent crude amid growing signals of strengthening domestic demand.

As risk appetite sparked a furious rally that sent major stock indexes to new records, U.S. light, sweet crude jumped in tandem, reaching an intraday high of $108.32 before paring some of those gains. Meanwhile, Brent crude was marginally higher, climbing about 15 cents to trade under $109, raising the possibility that West Texas Intermediate (WTI) may soon overtake its international counterpart.

The WTI contract settled up $1.56 at $108.04, its highest since March 2012.

"The economy seems to be rebounding, and a few signals suggest we're coming out of the recent trough," said Richard Hastings, macro strategist at Global Hunter Securities. "There's a little more pricing power in the economy, and a variety of different signals suggest the economy is perking up."

Data

Earlier in the session, the Philadelphia Federal Reserve Bank said its business activity index rose to 19.8 from 12.5 in June, blowing past market expectations. A bigger-than-expected drop in initial claims converged with Wednesday's figures showing crude stockpiles in the U.S. tumbled for the third consecutive week—underscoring how demand in the world's largest energy consumer is proving resilient even as demand abroad falters.

Partly confirming this trend, the Energy Information Administration released numbers showing that natural gas inventories fell short of market expectations—a bullish development for natural gas futures, which spiked by almost six percent intraday.

Booming production in the U.S., which is producing its highest output in about 20 years, has coincided with higher domestic demand. Refiners are consuming the highest amount of crude since August 2005, while crude inventories have tumbled for three consecutive weeks, according to EIA data.

That has led the price of WTI to converge with Brent, a move that has surprised some analysts with its speed.

"We did not expect the Brent-WTI spread to compress so quickly, and a string of factors have helped bring these two grades closer in recent months," analysts at Bank of America said in a research note this week.

"Much of the recent rally in WTI ... has happened against a much weaker global crude oil backdrop, with most global benchmarks failing to break $110/bbl this time around," the bank added, as it hiked its second-half forecast for U.S. oil to $100, up from $91.

—Reuters contributed to this article.

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