Oil bounces off 3-week lows as Greek debt default looms

[NEW YORK] Oil prices ended higher as it rebounded from three-week lows on Tuesday with US refined fuel trading leading the rally on bets for strong summer demand, even as Greece's move toward a debt default threatened to jolt global markets.

The run-up in oil also jarred with the stronger dollar, which normally tends to weigh on commodities.

The extension of a deadline for a nuclear deal that will let Iran export more crude into an oversupplied market was another bearish factor the market overlooked.

Brent crude settled up US$1.58, or 2.6 per cent, at US$63.59 a barrel.

It fell 3 per cent for June, rose 15 per cent for its best quarter since September 2012, and finished up 11 per cent for the half year.

US crude settled up $1.14, or almost 2 percent, at US$59.47. It slipped 1 per cent on the month; jumped 25 per cent in the second quarter for its best quarterly gain since December 2011, and closed up 12 per cent on the year.

Some analysts urged caution though, saying the selloff that slashed crude prices by 60 percent between June and January may return if crude stockpiles start piling again from September, after the end of summer driving season.

Industry group the American Petroleum Institute, however, surprised the market late on Tuesday by estimating a near 1.9 million-barrel build in US crude inventories last week, versus a Reuters poll for a 2-million-barrel draw. Official inventory data is due on Wednesday. "This isn't exactly a dead-cat bounce, but the fundamental picture is still bearish," Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland said, referring to the rally."I wouldn't be surprised to see losses in the next quarter." Expiring front-month contracts in U.S. gasoline and ultra-low sulfur diesel rallied nearly 3 per cent, helping lift crude futures, as traders and investors squared positions ahead of the month- and quarter-end.

Donald Morton, a crude trader in Haverhill, Massachusetts, for investment bank Herbert J. Sims & Co, said the market benefited from the crack spread, or the difference between the price of crude and petroleum products extracted from it.

The gasoline crack widened sharply for the first time in three days, while the diesel crack hit 11-day highs.

Greek government sources have said the country will default on a crucial repayment due to the International Monetary Fund later on Tuesday, plunging it deeper into financial crisis. The dollar rallied against the euro in anticipation of the default.

REUTERS