Singapore: Oil rose past $82 on Tuesday, rebounding from three-week lows as jet fuel demand increased, with European planes taking back to the skies after the threat from volcanic ash receded.
Flights from large parts of Europe are set to resume on Tuesday under a deal agreed by the European Union to free up airspace closed after a volcano erupted in Iceland last week. The disruption to air travel cut jet fuel use by at least 1 million barrels per day (bpd) in the past few days.
US crude for May delivery rose to as high as $82.38 and was up 65 cents at $82.10 a barrel at 8:25am. The June contract, which will become the front month on Wednesday after May expires on Tuesday, climbed 42 cents to $83.55.
In the previous two trading sessions, oil fell almost 5% because of the flight ban and after US government action against Goldman Sachs soured risk appetite across asset classes.
“The market reacted to the disruptions to air traffic in a kneejerk fashion, but now flights are increasing especially from southern Europe and there is a big push to try to allow more,” said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.
“Although the Goldman Sachs issue has of course changed the sentiment of the market, it really doesn’t change the fundamentals. The overall feeling is that we are in a V-shaped recovery and oil demand will rise. For people concerned about having missed the rally, this is a good time to get back in.”
US crude hit an 18-month high above $87 a barrel two weeks ago and had been hovering above $85 until the Goldman suit was announced.
ICE Brent crude on Tuesday gained 54 cents to $84.77, trading at a premium of more than $1 to the equivalent contract for US crude.
The dollar was nearly unchanged against a basket of currencies.
US crude oil inventories probably rose by 200,000 barrels last week due to higher imports, following a surprise dip the week before, a Reuters poll of analysts ahead of weekly inventory reports showed on Monday.
Distillate stocks, which include heating oil and diesel, could have risen by 800,000 barrels on average, while gasoline stocks may have gained 500,000 barrels, the poll showed.
The industry-funded American Petroleum Institute will release its weekly inventory report on Tuesday at 2:00am, followed by US Energy Information Administration statistics on Wednesday at 8:00pm.