Oil Closes Near $87 Despite Dollar Lift

The May delivery crude contract gains 22 cents, or 0.3%, to settle at $86.84 a barrel Tuesday, a day after the contract closed at its highest level in nearly one and a half years.
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NEW YORK (

TheStreet

) -- Oil settled higher Tuesday, inching closer to the $87-a-barrel level ahead of the most recent demand figures for crude.

The May delivery crude contract gained 22 cents, or 0.3%, to settle at $86.84 a barrel, a day after the contract settled at its highest level in nearly one and a half years.

The contract settled ahead of the American Petroleum Institute's supply report, which showed that crude inventories gained 1.07 million barrels in the week ended April 2.

The Energy Information Administration will unveil its supply assessment Wednesday morning. Analysts polled by Platts are expecting a 1.5 million-barrel buildup in crude inventories and a drawdown of 1 million barrels to gasoline stockpiles. Distillates, meanwhile, are projected to fall by 1.5 million barrels.

Crude advanced Tuesday despite a stronger dollar and relatively weak equities. The euro sank following reports that

Greece is seeking a way to amend its backstop rescue agreement involving the European Union and the International Monetary Fund. The dollar index, which compares the buck against a mix of currencies, was up 0.3%.

In the face of dollar firmness and slumping stocks, Gene McGillian, analyst at Tradition Energy, said crude's strength Tuesday is symptomatic of expectations for economic recovery, adding "the market, here, definitely wants to trend higher."

"It seems to have taken on a separate identity in the last couple of days," McGillian said. "But I do think as the market passed through the $84 area, there is an expectation as the economy recovers,

fuel demand will improve."

Still, as futures approach the $90-a-barrel threshold, McGillian expects fundamental data to receive renewed focus.

Tuesday afternoon brought

minutes from the March meeting of the

Federal Open Market Committee

, which suggested that members are in no hurry to raise interest rates because inflation pressures are likely to remain subdued.

The Philadelphia Oil Service Sector index rose 0.4%, though the NYSE Arca Oil index slipped 0.02%.

On the

Dow Jones Industrial Average

,

Exxon Mobil

(XOM) - Get Report

lost 29 cents, or 0.4%, to $67.90, while

Chevron

(CVX) - Get Report

gained 22 cents, or 0.3%, to $77.88.

JPMorgan initiated coverage on a range of driller and service names Tuesday. Offering "a generally cautious outlook" in a note about drillers, analysts gave

Ensco

(ESV)

an overweight rating, calling it the top pick of five names.

Diamond Offshore Drilling

(DO) - Get Report

was least preferred with an underweight label, while

Transocean

(RIG) - Get Report

,

Noble

(NE) - Get Report

and

Pride International

(PDE)

received neutral designations. Ensco shares advanced by 35 cents, or 0.7%, to $47.89, while Diamond Offshore slide down by 28 cents, or 0.2%, to $91.94.

"While we anticipate global upstream spending to increase by year-end 2010, we believe dayrates for both floating rigs and jackups rigs will likely remain subdued into 2011," analysts wrote in the note.

Halliburton

(HAL) - Get Report

and

Schlumberger

(SLB) - Get Report

were JP Morgan's top picks among the service companies, according to

MarketWatch

, which helped lift shares by 1.1% and 1.6%, respectively.

Elsewhere in the energy realm,

Massey Energy

(MEE)

shares tumbled by $6.24, or 11.4%, to $48.45 after a

blast at one of its subsidiary mines in West Virginia killed at least 25.

Elsewhere on the Nymex, the May natural gas contract shed 18 cents, or 4.2%, to settle at $4.10 per million British thermal units. May heating oil rose by a fraction, or 0.04% to settle at $2.27 a gallon, and May gasoline declined by a sliver, or 0.08%, to settle at $2.35 a gallon.

--Written by Sung Moss and Melinda Peer in New York

.