US oil prices surge on expectations of supply drop
West Texas Intermediate crude oil futures have surged to a one-month high on expectations for the first decline in weekly U.S. crude supplies in nearly three months as well as news that a key pipeline will begin service at the start of the year, relieving the glut of oil in the middle part of the country.
Nymex WTI oil futures climbed more than $2 a barrel to reach a session high of $96.04 a barrel. Front-month WTI futures have not settled above the $96-a-barrel mark since Oct. 31. Brent crude oil futures rose more modestly, up about $1 to a session high of $112.70 a barrel.
(Read more: Will Mexico open its oil industry to the world?)
News that TransCanada's 700,000 barrel a day pipeline taking crude from the main physical delivery point for the WTI oil futures in Cushing, Okla., to Port Arthur, Texas, on the Gulf Coast will begin service on Jan. 3 helped to spark Tuesday's move in the benchmark U.S. oil price.
"The pipeline news kicked off technical buying," said Addison Armstrong, senior director for market research at Tradition Energy. "Analysts are also looking for a drawdown in crude supplies for the first time in about two months."
Analysts surveyed by Platts expect that U.S. crude oil inventories fell by 1.25 million barrels last week, which would mark the first weekly decline since Sept. 13. Refinery runs rates are expected to be well above normal for this time of year, helping to reduce crude supplies.
Traders say the reduction in premium of Brent crude futures—the global oil benchmark—to the WTI contract is another factor aiding the surge in the U.S. oil price. Brent was trading at nearly a $20 premium to WTI a week ago. The spread is now closer to $16 a barrel.
OPEC oil ministers will meet in Vienna on Wednesday, yet traders and analysts are not expecting a change in production quotas and therefore little impact on oil prices.
—By CNBC's Sharon Epperson. Follow her on Twitter: @sharon_epperson