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Fuel demand sparks crude rally

The price of US light crude oil has climbed to its highest level in three weeks after a large drop in inventories of distillate fuels.

While today’s petroleum status report from the US Energy Department showed stockpiles of crude oil rising last week by 990,000 barrels, the first increase since November last year, the consensus estimate of economists had been for a bigger rise.

This smaller-than-expected rise along with a bigger-than-expected draw in supplies of distillate fuels has bolstered the price of crude oil in today’s trading, adding to support provided by yesterday’s news that the southern segment of TransCanada’s Keystone XL pipeline had starting shifting crude from Cushing, Oklahoma to refineries on the Gulf Coast.

The commencement of oil deliveries via the multi-billion dollar pipeline should help to ease the glut of oil at Cushing, possibly the most important oil hub in the US.

By mid-afternoon in New York, March crude oil futures had risen more than 1% to $97.80 a barrel.

Today’s inventory report from the Energy Information Administration, a part of the US Energy Department, revealed stockpiles of distillate fuel dwindled by 3.21 million barrels last week, far in excess of the 50,000-barrel decline that had been anticipated, as demand for distillate fuels increased by 1.5% .

Demand for these fuels, which include diesel and heating oil, could go even higher this week, with more severe cold forecast for much of the US.

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