Crude oil rose to a 4 1/2-month high after a report that US manufacturing grew last month, signaling demand for petroleum products will strengthen.
US manufacturing expanded in February for the first time in 19 months, an industry group said. Factories use about one-fourth of the products made from crude oil in the US. The report came after OPEC Secretary-General Ali Rodriguez said the group will probably keep production limits in place for the rest of the year.
"The US led the world into recession and should lead it out," said Lynn Reaser, chief economist at Banc of America Capital Management Inc in St. Louis. "You should see more demand from trucking, airlines and industrial operations."
Crude oil for April delivery rose US$0.66, or 3 percent, to US$22.40 a barrel on the New York Mercantile Exchange, the highest closing price for a contract closest to expiration since Oct. 12.
Prices gained 6.3 percent this week and have rallied 13 percent this year.
In London, Brent crude oil for April settlement rose 56 cents, or 2.6 percent, to 21.89 a barrel on the International Petroleum Exchange. Prices gained 7.5 percent this week.
The Institute for Supply Management's factory index rose to 54.7 last month from 49.9 in January. A reading above 50 signals expansion. The last time the index exceeded that level was July 2000.
"The economy is entering a period of expansion, which will result in increased demand for oil," said David Becker, energy derivatives trading manager at Citibank NA in New York.
Oil company shares were among the biggest gainers on the Standard & Poor's 500 Index on expectations that higher fuel demand will bolster profits. Exxon Mobil Corp, the largest oil company, rose US$0.49 to US$41.79 in late afternoon trading.
ChevronTexaco Corp was US$0.37 higher at US$84.81.
While crude oil demand may strengthen, OPEC, which cut oil output four times in the past 14 months, probably will leave its quotas unchanged for the rest of the year, Rodriguez said.
"Growth in demand will be very modest this year," Rodriguez said in a telephone interview from OPEC's Vienna headquarters. "I believe we will maintain the decision" to restrict supplies in 2002.
Rodriguez also said he was confident that Russia, the second-biggest oil exporter after OPEC-member Saudi Arabia, will extend its export ceiling through June. Oil rallied this year after Russia, Norway, Mexico, Angola and Oman joined with members of OPEC in pledging to reduce world supply by about 2 million barrels a day, or 2.5 percent. Russia's share was 150,000 barrels a day.
The secretary-general will meet with oil officials in Moscow next week to try to convince them to extend the export limits.
Even so, Russian oil companies will probably restore exports to pre-January levels in the second quarter, said Alexei Turbin, a spokesman for the Russian energy ministry.
"OPEC officials will be trying to convince us to extend the export cuts," Turbin said. "This is unlikely, as there was no consolidated decision made by oil companies to do so."
The 10 OPEC members with quotas, all except Iraq, pumped 22.5 million barrels a day in February, down 1.3 percent from a revised January estimate of 22.8 million barrels, said Conrad Gerber of Geneva-based PetroLogistics Ltd, which tracks oil shipments.
Output still was 800,000 barrels a day above the group's quota of 21.7 million barrels a day.