Oil surged to another 10-month high above $74 a barrel on Thursday ahead of U.S. data that is expected to show refiners are processing more crude to meet robust summer gasoline demand in the world's top consumer.
London Brent crude, now seen as more representative of the global market, hit $74.26 a barrel, the highest since August 15, 2006, after kicking through the previous 10-month high. At 1234 GMT it was up 80 cents at $73.85.
U.S. crude was up 38 cents to $71.79.
Demand is leading the way. It is set to increase steadily year on year. Global GDP growth is very robust and even if it slows, it is still growing, said Mark Mathias, fund manager at hedge fund Dawnay Day Quantum.
The market for refined product will remain tight and we see upside for gasoline and for heating oil out to December/January, he added.
Analysts polled by Reuters forecast a dip in U.S. crude stocks week on week and a rise in stocks of refined oil products. They also noted strong gasoline sales ahead of the July 4 holiday when millions of Americans take to the roads.
Oil prices have risen to a series of 10-month highs over the past week as investors focus on prospects that the rise in crude oil demand from U.S. refiners could rapidly deplete inventories that are at a nine-year high.
OPEC has resisted calls from the International Energy Agency, representing 26 industrialised consumer nations, to increase production in a pre-emptive move.
The exporter club, supplier of over a third of the world's oil, agreed at two meetings towards the end of 2006 to cut 1.7 million barrels per day from supplies, roughly six percent. It next meets on September 11.
Event risks give crude upside near-term, but the fourth quarter is likely to bring a downward correction which extends into 2008. We forecast average WTI (U.S. crude) prices of $67 a barrel in Q3 and $60 a barrel in Q4, JP Morgan analysts said in a report.
Dawnay Day Quantum's Mathias said technical factors pointed to higher prices.
At a technical level, oil prices have positive momentum and the trend is up. I am looking for oil to test $80 again this year, he explained.
FOCUS ON REFINERIES
The weekly U.S. data, due at 1430 GMT, is expected to show a 100,000 barrels rise in distillate stocks and a 300,000 barrels increase in gasoline, according to the Reuters survey.
Crude stocks were expected to have fallen by 300,000 barrels. Analysts will focus on refinery utilisation rates, which were expected to have risen by 0.9 percentage points from exceptionally low levels.
We will be keeping an eye on refinery production figures, as any indication of higher run rates would signal a drawdown on crude stocks, said Tobin Gorey, a commodities strategist with Australia's Commonwealth Bank.
Traders are looking further ahead to the winter fuel season, because these next few months is when refiners will be buying their crude to meet the demand ahead, Gorey said.
In Nigeria a rebel group responsible for a large number of the attacks on the country's oil industry ended a month-long truce, while an attack on a Shell oil rig in the delta served as a reminder of the supply risks there.
(Additional reporting by Luke Pachymuthu in Singapore)