Oil Up on Volatile Spread Trade, Weak Dollar

Brent crude rose slightly on Tuesday and U.S. crude jumped more than 1.5 percent, bolstered by an unplanned outage at a Canadian oil sands plant and optimism about an agreement on Greece's debt crisis.

Henrik Weis | Lifesize | Getty Images

An Alberta plant that processes Canadian oil sands was expected to be shut for two or three weeks, adding lift for U.S. crude and helping narrow its deficit to Brent. 

Brent's premium to U.S. crude oil widened in early trade to more than $20 per barrel, its highest since October, before a brief but sharp reversal by Brent and rally by the U.S. contract narrowed the spread back below $18 and left it at $17.82 based on settlements.

"The spread got above $20 and it looks like some big players came in and pulled it back, then the dollar fell on expectations a Greece debt deal is coming," said Chris Dillman, analyst at Tradition Energy in Stamford, Connecticut.

Before the start of open outcry floor trading in New York, Brent surged to a six-month peak above $117 due to Europe's severe cold snap and fears that Iran would halt exports to the European Union in advance of the EU's embargo set for July.

U.S. crude prices had been restrained by rising domestic stocks and tepid demand revealed in government data, even as recent jobs reports painted an improving picture more supportive to oil.

Brent crude futures

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[LCOCV1  Loading...      ()   ] rose 30 cents to settle at $116.23 a barrel, a sixth straight higher close, having traded from $115.60 to $117.50, its highest intraday price since Aug. 2.

During its rally above $117, Brent's Relative Strength Index reached 70, which signaled an overbought condition for investors who watch technical indicators.

U.S. light, sweet crude futures

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[CLCV1  Loading...      ()   ] rose $1.50 to settle at $98.41 a barrel, having swung from $95.84 to $99.13.

Total crude futures trading volume was heavy, especially for the U.S. contract. U.S. turnover exceeded 1 million lots and was 89 percent above the 30-day average, while Brent turnover was 38 percent above its 30-day average.

Dollar denominated commodities also found support as the euro rallied across the board on Tuesday, hitting an eight-week high against the greenback on optimism that Greece is about to agree on a bailout deal that will enable it to avoid a messy default. 

Iran and Nigeria

Iran's parliament said on Tuesday it was ready to impose a ban on oil exports to the EU, the Iranian Press TV reported, ahead of a ban announced by the EU slated to begin from July 1.

Clashes in Nigeria are also worrying investors about potential supply disruptions after a Sunday attack on a pipeline belonging to Italy's Eni and Tuesday's bombing of an army barracks.

EIA Ups Demand View 

The U.S. Energy Information Administration boosted its 2012 and 2013 forecasts for global oil demand growth and said supply would tighten as gains in non-OPEC production lag, adding to support for oil prices.

U.S. gasoline demand last week fell more than 5 percent for the third straight week compared with year-ago levels, according to a separate report from MasterCard, with demand down 2.8 percent from the previous week.

Ahead of inventory reports from industry and government, U.S. crude oil and gasoline stocks were expected to have risen last week, a Reuters survey of analysts showed.

Distillate stockpiles were expected to have slipped.

Industry group the American Petroleum Institute was slated to release its inventory report.

The EIA's government data follows on Wednesday.