Crude advanced as Saudi Arabia said it would work with other producers to curb market fluctuations and China's central bank stepped up efforts to support the economy.
West Texas Intermediate oil rose as much as 3 per cent. Saudi Arabia wants a stable oil market, according to state-run Saudi Press Agency. China reduced the amount of cash the nation's lenders must lock away. Gasoline and diesel futures also climbed as the February contracts approached expiration after inventories declined.
"It's the Saudis' turn to talk up the market today," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "The market is giving the oil producers the benefit of the doubt now. The move by the Chinese to cut the required reserve ratio is also giving the market support."
Prices slipped to a 12-year low on February 11 in New York amid speculation a worldwide surplus will be prolonged with US crude stockpiles at the highest level in more than eight decades and the outlook for increased exports from Iran. A proposal to freeze output by Saudi Arabia and Russia is achievable and prices may rise to as high as $US50 a barrel by the end of the year, Nigerian Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu told CNBC.
WTI for April delivery rose 71 cents, or 2.2 per cent, to $US33.49 a barrel at 12.05pm on the New York Mercantile Exchange. Prices rose 11 per cent last week, the most since August. Total volume traded was 8.4 per cent lower than the 100- day average.
Brent for April settlement increased 85 cents, or 2.4 per cent, to $US35.95 a barrel in its last session before expiring on the London-based ICE Futures Europe exchange. Brent's premium to WTI was $US2.46, after reaching an 11-week high of $US2.86 on February 26. The more-active May contract climbed 93 cents to $US36.37.
March gasoline futures rose 1.5 per cent to $US1.0318 a gallon. Diesel for March delivery advanced 2.8 per cent to $US1.081.
US gasoline supplies fell 2.24 million barrels to 256.5 million in the week ended February 19, the first decline since November, according to an Energy Information Administration report on February 24. Demand rose 1.8 per cent to 9.06 million barrels a day through February 19, averaged over four weeks.
"Gasoline demand and falling crude output are behind the rally," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. "The rally really took off last Wednesday when the gasoline storage number showed the first decline in 15 week. The gasoline supply drop seems to have put a bottom in the market."
US crude production fell by 33,000 barrels a day to 9.1 million in the week ended February 19, the lowest since October, EIA data show. Rigs targeting oil in the nation's fields fell to 400 last week, the lowest since December 2009, Baker Hughes Inc. said on its website February 26. Nationwide crude stockpiles rose 3.5 million barrels to 507.6 million, the most since 1930.
"We should see another crude production cut this week, especially given the drop in the rig count," Yawger said. "I don't think we will see output drop 100,000 barrels but if we do fall below 9 million barrels a day the impact will be huge."
Hedge funds and other speculators have increased net-long positions in WTI futures and options to the highest level since November, US Commodity Futures Trading Commission data show. Speculators' net-long position in WTI rose by 13,385 contracts to 110,554 in the week ended February 23. Shorts, or bets that prices will decline, slipped 6.7 per cent while longs climbed 0.2 per cent.
Money managers increased their bullish stance on Brent crude to the highest in at least five years. Funds boosted net- longs in Brent by 35,416 contracts to 320,289 in the week to February 23, according to data published Monday by ICE Futures Europe. That's the highest since at least early 2011.
Low prices are affecting oil companies:
* Petroleo Brasileiro got a $US10 billion loan from China Development Bank Corp. as the state-owned company faces more than double that amount in maturities over the next two years. The loan is part of an agreement to supply crude to China, the Rio de Janeiro-based company said in a filing on Friday.
* Italy's largest oil producer Eni reported a fourth-quarter loss on Friday even as crude and gas output rose to the highest in five years.
* Husky Energy, the producer controlled by Hong Kong billionaire Li Ka-Shing, reported a fourth-quarter loss that narrowed from a year earlier.
BRU Price at posting:
20.5¢ Sentiment: Buy Disclosure: Held
