OIL futures jumped more than US$2 a barrel yesterday after the Bush administration and Congressional leaders agreed to an economic stimulus plan in an effort to avert a major slowdown in the US economy.
Prices were already higher after the government reported a drop in heating oil supplies and as investors anticipated a stimulus plan. But futures took off, posting their largest gains in over three weeks, on word that an agreement had been reached.
"What's boosting us up today is a little economic optimism because people are going to get a little free money," said Phil Flynn, an analyst at Alaron Trading Corp., in Chicago.
The package will give most tax filers refunds of US$600 to US$1,200, and more if they have children.
Light, sweet crude for March delivery rose US$2.42 to settle at US$89.41 a barrel on the New York Mercantile Exchange.
The weekly inventory report from the Energy Department's Energy Information Administration showed stocks of distillates, which include heating oil and diesel fuel, fell 1.3 million barrels last week, surpassing the average forecast of analysts surveyed by Dow Jones Newswires, who said distillate supplies would remain unchanged.
That decline was countered by domestic gasoline inventories, which jumped by 5 million barrels, more than triple analyst expectations. Crude inventories rose by 2.3 million barrels, slightly more than analysts had expected.
Because the report was mixed, investors' attention returned to the economy. Oil prices have fallen in recent days, following equity markets which dropped earlier this week on recession worries. But the stock market's recovery on Wednesday, as well as overnight rallies by stock markets in Europe and Asia, helped push energy futures higher even before the Energy Department issued its report.
Energy investors often view stocks as a proxy for economic growth, fearing that a slowdown would curtail demand for oil and petroleum products such as gasoline and heating oil.
Other energy futures also rose yesterday. February gasoline rose 3.2 US cents to settle at US$2.2828 a gallon on the Nymex, and February heating oil rose 5.32 US cents to settle at US$2.4763 a gallon.
Yesterday's EIA report, which was delayed by a day due to the Martin Luther King Jr. holiday on Monday, also showed that refinery activity fell by 0.6 percentage point last week to 86.5 percent of capacity. Analysts had expected refinery activity to remain unchanged.
The jump in crude stocks came despite a 233,000 barrel a day decline in crude imports.
In other Nymex trading Thursday, February natural gas rose 18.1 US cents to settle at US$7.802 per 1,000 cubic feet. In a separate report, the EIA said natural gas inventories fell last week by 155 billion cubic feet, in line with expectations.
In London, March Brent crude rose US$2.45 to settle at US$89.07 a barrel on the ICE Futures exchange.