US oil rises above $87

US crude rallied above $87 a barrel on Wednesday, as President Barack Obama's call for lower corporate taxes spurred hopes for higher profits and greater energy demand. US Federal Reserve policymakers, at the end of a two-day meeting, said they would press on with a plan to buy $600 billion in government debt to further stimulate the economy, giving oil markets a further boost just before the close.
-- Brent premium to US crude exceeds $10, highest in 2 years Investors shrugged off data showing US crude oil stockpiles jumped nearly 5 million barrels last week, more than expected and extending supply gains for a second week. "Prices are holding and part of that may be due to the fact that President Obama, in his State of the Union message, had struck a generally pro-business stance," said Phil Flynn, analyst at PFGBest Research in Chicago.
In his address to Congress on Tuesday night, Obama had asked lawmakers to work with him to cut the corporate tax rate and simplify the tax code, moves that could lead to higher corporate profits. US equities gained on positive reaction to Obama's pro-business proposal, even though the Fed policymakers gave a lukewarm economic assessment, with unemployment remaining a tough issue. But that, they said, should justify continuing with the bond-buying plan.
US crude for March delivery settled $1.32 higher, or 1.32 percent, at $87.33 a barrel, rebounding after six straights days of losses on rising inventories as well as worries about global economic recovery. In London, March Brent traded up $2.61, or 2.74 percent to $97.86 a barrel.
Brent crude's premium against US benchmark crude, also known as West Texas Intermediate, soared to a 24-month high of more than $10, the widest since January 2009. Brent strengthened as data from the US Energy Information Administration showed crude stockpiles at the key storage hub in Cushing, Oklahoma, delivery point for crude traded on the New York Mercantile Exchange, rose 862,000 barrels last week.
"Brent and WTI have been trading increasingly as entirely separate commodities in recent weeks, driven by decidedly different fundamentals," said J.P. Morgan analysts in a report. "Unsurprisingly, the main issue for the wide Brent-WTI spread seems to lie not with Brent but rather with WTI."
The rally in oil markets was part of an overall surge in commodities as demand optimism resurfaced, putting the Reuters-Jefferies CRB index, which tracks 19 commodities, on a course to erasing Tuesday's hefty loss. Brent and US crude hit more than two-year highs earlier this month, Brent trading just 80 cents short of the $100 a barrel milestone on January 14. The immediate risk of a breach of $100 had now receded with prices likely to trend lower through the first quarter, said analysts at Credit Auricle CIB and Facts Global Energy.
"I think the fall is justified by the disappearance of very cold weather in Europe and the restart of the Alaskan pipeline as well as signs that the Organisation of the Petroleum Exporting Countries is increasing production," said analyst Christophe Barret at Credit Auricle.