Bloomberg News

Oil Rises as U.S. Supplies Plunge; OPEC May Raise Quotas Today

June 07, 2011

June 8 (Bloomberg) -- Oil climbed for a second day in New York after a report showed U.S. crude supplies declined the most since December and on speculation OPEC will increase production quotas, signaling global fuel demand will climb.

Futures gained as much as 0.7 percent after the industry- funded American Petroleum Institute said crude stockpiles fell 5.5 million barrels to 366 million. OPEC will raise its output target at a meeting in Vienna today, according to a Gulf delegate with knowledge of the matter. The U.S. raised its forecast for global oil consumption for this year.

“The spike can be attributed to the API data,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who predicted crude will average $100 this year. “It’s a bit of a knee-jerk reaction. The U.S. came out with their forecast and said they expected more demand. That’s a bullish view and as a result there may be a bit of pressure” for OPEC to increase output, he said.

Crude for July delivery advanced as much as 70 cents to $99.79 a barrel in electronic trading on the New York Mercantile Exchange and was at $99.21 at 11:52 a.m. Sydney time. The contract yesterday rose 8 cents to $99.09. Prices are 38 percent higher the past year.

Brent crude for July delivery fell 53 cents, or 0.5 percent, to $116.25 a barrel on the London-based ICE Futures Europe exchange. The contract yesterday gained $2.30, or 2 percent, to $116.78. Prices are up 61 percent the past year.

OPEC Quotas

The European benchmark contract traded at a premium of $17.05 a barrel to U.S. futures yesterday. The difference between front-month contracts in London and New York reached a record $19.54 on Feb. 21. It averaged 76 cents last year.

The Organization of Petroleum Exporting Countries will raise its production quota for the first time since 2008 to help replace lost Libyan supplies and meet growth in demand later this year, a Gulf delegate said.

OPEC is producing 2 million barrels a day above its official ceiling, the delegate said, declining to be named because he isn’t authorized to speak publicly. An increase in the output targets would help replace missing supplies from Libya and meet demand-growth projections for later this year.

Production quotas will likely increase by 1.5 million barrels a day, analysts from Societe Generale SA and Morgan Stanley said in reports yesterday. That would be about a quarter of the group’s spare capacity, based on Bloomberg estimates.

U.S. Imports

OPEC had 5.94 million barrels a day in spare capacity in May, down 2.7 percent from April, based on Bloomberg estimates. Spare capacity was 6.31 million barrels a day in March, the highest level since May 2009.

U.S. crude-oil supplies last week fell the most since the week ended Dec. 31, according to the American Petroleum Institute. Gasoline supplies declined 390,000 barrels to 212.3 million, the report said.

Crude imports dropped 11.9 percent, the third-biggest decline this year. Starting May 29, the 591,000-barrel a day Keystone pipeline, operated by TransCanada Corp., was shut because of a leak at a pump station. The system extends from Alberta to the Nymex delivery point at Cushing, Oklahoma.

Stockpiles at the Petroleum Administration for Defense District 2, which includes the Midwest states of Illinois and Oklahoma, fell by 2.6 million barrels last week, the largest decline since October. Cushing supplies slid 1.5 million barrels to the lowest since Feb. 25.

DOE Report

An Energy Department report today may show crude inventories slipped by 1.38 million barrels while gasoline stockpiles increased by 1.05 million, according to a Bloomberg News survey of analysts.

Oil-supply totals from the American Petroleum Institute and DOE have moved in the same direction 72 percent of the time over the past year. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

The U.S. Energy Department raised its forecast for global oil consumption for this year to 88.43 million barrels a day from 88.08 million in May, according to its monthly Short-Term Energy Outlook, released yesterday. It cut its price forecast to an average $101.91 for 2011 from $102.67 last month.

--Editors: Paul Gordon, Ryan Woo

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net


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