Light, sweet crude oil for February delivery settled 68 cents, or 0.7%, higher at $96.24 a barrel on the New York Mercantile Exchange. The February contract expired at settlement Tuesday, and the more heavily traded March contract settled 64 cents higher at $96.68 a barrel.
Brent crude oil on the ICE futures exchange for March delivery traded 68 cents higher at $112.39 a barrel.
Energy and commodities markets often use equities as a proxy for investor expectations about the future of the economy, and with it, demand for raw materials. On Tuesday, oil markets cheered a turnaround in stocks after declines early in the session.
The Dow Jones Industrial Average was recently 0.3% higher at 13693, on pace to finish at the highest level since 2007.
“The bottom line is the equities are starting to find some life here in the afternoon,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude is trading against its highs, and equities are trading against their highs.”
Oil prices have rallied by roughly 8% since the beginning of December on an improving outlook for global oil demand and concerns that the hostage crisis in Algeria could mark a new period of violence in the oil-rich region.
On Friday, the International Energy Agency raised its global oil-demand forecast for 2013 by 900,000 barrels a day, due to stronger demand from China.
Still, analysts and traders are increasingly wary that the rally could quickly lose steam.
“It looks like we’re getting close to a peak on oil,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “We’re probably ready for a pullback.”
The Bank of Japan said Tuesday it agreed on an “open-ended” plan to fight deflation, adopting an inflation target of 2% and disclosing open-ended asset purchases. Investor response was mixed, however, as the program won’t come into effect until 2014.
Without further support from stock markets and a weaker U.S. dollar, the oil market is unlikely to push higher if demand holds at current levels, some analysts said.
“The uptrend across the energy complex that has been developing for some six weeks has largely run its course,” said Jim Ritterbusch, head of trading adviser Ritterbusch & Associates, in a research report.
Front-month February reformulated gasoline blendstock, or RBOB, settled 3.31 cents, or 1.2%, higher at $2.8299 a gallon. February heating oil settled 0.5% higher at $3.0682 a gallon.
*Jerry A. DiColo, Dow Jones