Oil rose past $82 today, rebounding from three-week lows as jet fuel demand increased, with European planes taking back to the skies after a threat from ash spewed by a volcano in Iceland receded.
Flights from large parts of Europe are set to resume under a deal agreed by the European Union to free up airspace closed after the volcano erupted last week. The disruption cut global jet fuel use by about 20 per cent in the past few days.
US crude for May delivery rose as high as $82.38 and was up 74 cents at $82.19 a barrel by 0724 GMT, after Citigroup reported its best results since 2007 yesterday, raising investor optimism about corporate earnings and helping allay risk aversion.
In the previous two trading sessions, oil fell almost 5 per cent because of the flight ban and after US government action against Goldman Sachs soured risk appetite.
"The market reacted to the disruptions to air traffic in a knee-jerk 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.
"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 for June, which will become the front month tomorrow after May expires today, climbed 50 cents to $83.63. The front-month contract hit an 18-month high above $87 a barrel two weeks ago and had been hovering above $85 until the Goldman suit was announced.
"The Goldman thing is going to drag out for a while," Mr Nunan said, adding that oil prices for now may stabilise in a range between $80 and $85. Citigroup's strong performance "counters a bit the fear about Goldman dragging the whole banking sector down."
ICE Brent crude for June tomorrow gained 58 cents to $84.81, 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 yesterday.
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.
"If we have bearish statistics showing an increase in inventories, we could see a return to the downtrend," Mr Nunan said.
The industry-funded American Petroleum Institute will release its weekly inventory report today at 2030 GMT, followed by US Energy Information Administration statistics tomorrow at 1430 GMT.
British air traffic controllers warned a new ash cloud was headed for major air routes, though plans to reopen airports in Scotland remained in place for 0600 GMT.
Others in northern England were to follow later, though there were no plans to reopen London's international hubs. British Airways still cancelled all short-haul flights today.
Jet fuel oversupply may spill over to other oil markets, Societe Generale said in a note dated April 19th.
"Jet fuel degrades relatively quickly, so refiners will need to take action," analysts headed by Michael Wittner said. "One way to get rid of oversupply that has already built up is to blend it into the diesel and gas oil pools, putting downward pressure on those cracks."
Reuters