Oil Hits $75

Crude contract back atop $75 a barrel

SAN FRANCISCO (MarketWatch) -- Crude-oil futures climbed past $75 a barrel Tuesday, with improvements in U.S. refinery activity expected to dent crude supplies and with overseas production challenges and a key options expiration helping send prices higher.

The benchmark August crude contract touched its highest level since last August.
"The market is trying to fulfill its technical destiny," said Phil Flynn, analyst at Alaron Trading.

"Fund money has been pouring into the energy complex for the past couple of weeks, and that has bolstered prices quite a bit, adding $5 to $10 a barrel," said Michael Lynch, president of Strategic Energy & Economic Research.

"They are reacting in part to the outages in Nigeria and the North Sea, as well as refinery problems in the U.S.," he said in e-mailed comments.

But Lynch warned that "it appears as if the third quarter will see a serious turnaround in fundamentals, especially if we don't get any major hurricane losses."
'Fund money has been pouring into the energy complex for the past couple of weeks, and that has bolstered prices quite a bit, adding $5 to $10 a barrel.'
— Michael Lynch, Strategic Energy & Economic Research.

Crude oil for August delivery was last up 80 cents, or 1.1%, to $74.95 a barrel on the New York Mercantile Exchange. The contract hit an intraday high of $75.35 a barrel during the session, its highest level since August 25, 2006, when it climbed as high as $76.38.

The record intraday level for a front-month contract stands at $77.95 from the regular trading session on July 14, 2006. In electronic trading, it climbed as high as $78.40 that day.

The expiration of August crude options likely helped exaggerate Tuesday's move, traders said.

And petroleum products climbed along with crude, with the August reformulated gasoline adding 2.38 cents, or 1.1%, to trade at $2.15 a gallon, but that's after dropping Monday to a one-month low. August heating oil rose 1.74 cents to $2.073 a gallon.

As of Tuesday, however, the precise production output affected by the closure of the CATS pipeline remained unknown, Dow Jones Newswires reported.

"North Sea production problems have been supporting Brent for the last few days," said James Williams, economist at WTRG Economics.

But it's really "about refinery capacity and demand from refineries snapping up crude inventories," said John Person, president of NationalFutures.com. "That is what is keeping the bullish pressure going for this market."

Traders have been focusing on refinery activity for several weeks. The largest of three crude-processing units at BP Plc's Whiting, Ind., refinery was restarted over the weekend. The unit had been taken offline on July 9, according to a news report Monday from Dow Jones Newswires.

Separately, BP said the restart of a processing unit at its Texas City, Texas, refinery will likely stretch into the week and may take until July 22 to conclude, Dow Jones reported Monday. And a processing unit at Valero Energy's McKee refinery in Sunray, Texas, was restarted Saturday after several days of repairs.

"The return of three refineries to full operations... should start to reduce the exceptionally high crude-oil stocks," said Williams, in e-mailed comments.
At the same time, West Texas Intermediate crude is likely "trying to return to its normal relationship to the price of Brent," said Williams. "WTI normally trades at a premium to Brent but high inventories at Cushing, [Okla.] depressed the U.S. marker crude, and Brent has been at a premium to WTI."

On Monday, Brent crude climbed as high as $78.40 on the InterncontinentalExchange
ICE167.98, -2.00, -1.2%) -- 25 cents shy of the record intraday high reached in August 2006, according to Dow Jones Newswires. On Tuesday, it traded lower.

'It looks as if the old high of $78.40 will be challenged, and if there is even a hint or suspected threat of a supply disruption of any kind from here until mid September ... then $80 and even $85 is not out of the picture.'
— John Person, NationalFutures.com