Front-month oil rises ahead of expiry

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US prompt crude oil futures surged at the close on Wednesday and snapped a six-day losing streak as traders covered short positions ahead of expiry, but other contracts fell as euro zone worries spurred risk aversion.

US June crude, which expires on Thursday, settled up 46 cents at USD 69.87 a barrel in volatile trade that saw prices drop as low as USD 67.90, the lowest intraday price since Sept. 30, 2009 and down more than 22% from the 19-month high hit on May 3.

"As we're getting close to expiration, some of the shorts in the market that have sizable positions are doing some pre-expiration day covering and that's why you saw the front contract run," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

US oil prices surged further after settlement, to a session high USD 71.22. At settlement, June crude's discount against the July contract, which is not trading more heavily than June, narrowed to USD 2.61 from USD 3.29 at the close on Tuesday.

"The majority of the rolls from the expiring June contract to the next month appear to be nearly completed and the spreads have tightened," said Rich Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.

Brent crude, with its front-month July contract, ended down 74 cents at USD 73.69, weighed down by Germany's moves to curb speculation which roiled financial and commodity markets and prompted a move to safer investments.

Germany banned naked shorts, or bearish wagers, on some financial instruments amid worries that the euro zone's sovereign debt troubles would stunt economic growth.

The Reuters-Jefferies CRB index, a global commodities benchmark, closed down 0.9%.

The euro rallied from a four-year low against the dollar as traders bought the unit amid speculation that European monetary officials may act to support the currency. The dollar was down 0.98% against a basket of currencies.

Weekly inventory data from the U.S. Energy Information Administration showed crude stocks rose 200,000 barrels last week, against a forecast in a Reuters poll for a 700,000 barrel rise. Inventories at the key Cushing, Oklahoma delivery point for the New York Mercantile Exchange hit another high, however.

Distillate stocks posted a surprise decline and gasoline inventories dropped, but by a lower than forecast volume.

Oil is below the USD 70 to USD 80 level many members of the Organization of the Petroleum Exporting Countries have said they prefer, but OPEC officials have stopped short of calling for any immediate steps to prop up the market.

"Prices are not related to supply and demand. They are related to the world economy. There is no role for OPEC at this stage," said Algeria's oil minister, Chakib Khelil, adding prices were likely to rebound once the Eurozone rescue package started to take effect.