Oil Rises Above $79 on Wall Street Gains

Oil prices rose more than 1 percent on Tuesday as gains in the U.S. stock market boosted prices, outweighing earlier pressure from mild weather and the stronger greenback.

U.S. light, sweet crude [CLC1  78.93 0.93 (+1.19%)] rose $1.02 to settle at $79.02 a barrel.

The New York Mercantile Exchange combined prices for Monday and Tuesday into a single trading session because of the Martin Luther King Day holiday.

London Brent crude [LCOC1  77.69    0.59  (+0.77%)] was also higher.

“I do think the S&P 500 is the market’s excuse for price recovery. Whether that establishes that the S&P trumps the stronger dollar and the direct fundamentals remains to be seen,” said Tim Evans, energy analyst at Citi Futures Perspective in New York.

Wall Street Tuesday boosted crude prices as investors bet that a Massachusetts Senate race could derail President Obama’s healthcare reform plan.

Opinion polls showed that Massachusetts voters may replace the late Senator Edward Kennedy with a Republican, taking away the Democrats’ 60-vote supermajority in the U.S. Senate.

The S&P Healthcare Index climbed 2.1 percent on Tuesday, with Humana [HUM  51.40    2.89  (+5.96%)] and pharmaceutical company shares leading gains.

Fundamentals Still Weigh

However, high oil inventories and weaker demand due to mild winter weather were still a factor for oil prices, analysts said.

U.S. heating fuel demand is expected to be well below normal this week, according to the National Weather Service.

The Organization of the Petroleum Exporting Countries (OPEC) said Tuesday that oil inventories are high enough to absorb any increase in winter fuel demand.

The group also cut its forecast for demand for its crude by 20,000 barrels per day to 28.59 million bpd in its monthly report, while leaving its forecast for world oil demand growth unchanged at 820,000 bpd.

Futures and Pre-Market

A stronger dollar may also add some pressure to oil prices, with the euro falling to a four-week low against the dollar.

A rise in the value of the dollar often discourages investor interest in dollar-denominated commodities such as oil.

Japan Airlines’ bankruptcy filing Tuesday may also have some impact on oil prices, some analysts said. The company said it would cut more than 15,000 jobs and unprofitable routes.