Bloomberg News

Crude Oil Increases After Report Showing U.S. Stockpile Decline

June 22, 2011

June 22 (Bloomberg) -- Crude oil climbed as a government report showed U.S. supplies fell a third week and refineries increased operating rates to the highest level in 10 months.

Futures rose 1.3 percent after the Energy Department said inventories dropped 1.71 million barrels to 363.8 million last week. Refineries operated at 89.2 percent of capacity, the most since the week ended Aug. 13. Oil also rose after Greek Prime Minister George Papandreou won a vote of confidence, reducing concern repercussions of Greece’s debt crisis will spread.

“The inventory data today was certainly supportive,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “We’re also higher because it doesn’t look like the euro zone is going to implode soon. The Greek vote of confidence is a huge relief.”

Crude oil for August delivery rose $1.24 to settle at $95.41 a barrel on the New York Mercantile Exchange. Futures are up 24 percent from a year ago.

Brent crude oil for August delivery climbed $3.26, or 2.9 percent, to end the session at $114.21 a barrel on the London- based ICE Futures Europe exchange. It was the biggest gain since May 9.

The European benchmark contract traded at a premium of $18.80 a barrel to U.S. futures. The difference between London and New York oil futures reached a record of $22.29 on June 15.

Supplies of oil at Cushing, Oklahoma, the delivery point for the New York-traded West Texas Intermediate grade, rose for the first time in four weeks. Inventories climbed 273,000 barrels to 38 million, the report showed. Cushing is the terminus of the Keystone pipeline, which carries Canadian oil to the central U.S. and was closed from May 29 to June 5.

Relative Weakness

“There was a gain at Cushing, which may explain the relative weakness of oil on the Nymex today,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Nationwide stockpiles of oil were projected to decrease by 1.83 million barrels, according to the median of 16 analyst responses in a Bloomberg News survey.

“Although there was a slight drop in supplies, crude remains abundant,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “It looks like the market is still headed lower in the short term. Prices could move back to the mid-$80s by mid-July.”

Supplies of gasoline dropped 464,000 barrels to 214.6 million last week, the report showed. It was the first decline in seven weeks. Consumption of the motor fuel increased 0.8 percent to an average 9.32 million barrels a day in the four weeks ended June 17, 0.9 percent higher than a year earlier, the Energy Department said.

Gasoline for July delivery climbed 9.07 cents, or 3.2 percent, to settle at $2.9733 a gallon in New York.

Refinery Utilization

Refinery utilization rates rose 3.1 percentage points, the report showed. Analysts surveyed by Bloomberg News projected a 0.5 percentage point gain. Gasoline output climbed 0.8 percent to 9.54 million barrels a day, the highest level since August.

“There was a big week-to-week gain in refinery operating rates, which we didn’t expect,” Evans said. “Gasoline prices are up strongly on the drop in supplies, which is short-sighted. The increase in refinery operating rates promises additional supplies down the road, probably within two weeks.”

Papandreou now turns his attention to clinching parliamentary approval next week of a 78 billion-euro ($112 billion) package of budget cuts to stave off default. European finance ministers and the International Monetary Fund said they would hold back a 12 billion euro payment due in July until passage of the plan.

‘Worst-Case Scenario’

The Greek vote “opens the way for the implementation of crucial austerity measures,” David Wech, Vienna-based head of research at JBC Energy GmbH, said. “The worst-case scenario of a near-term default of the Southern European country seems to be off the table, at least for the time being.”

Federal Reserve officials said they will maintain record monetary stimulus to support a flagging economic recovery after completing a $600 billion bond-purchase program as scheduled this month.

Fed Chairman Ben S. Bernanke has said record-low interest rates are still needed to spur a recovery that remains “frustratingly slow” two years after the recession ended. The benchmark rate was left in a range of zero to 0.25 percent.

‘The Huge Drop’

“The Fed news was expected,” said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The main reason for the move higher is the huge drop last week. It’s time for a correction.”

New York oil tumbled 6.3 percent last week on signals U.S. economic growth is slowing and as fuel consumption dropped. Futures ended the week at $93.01 a barrel, the lowest settlement since Feb. 18.

Oil volume in electronic trading on the Nymex was 485,071 contracts as of 3:06 p.m. in New York. Volume totaled 552,719 contracts yesterday, 17 percent below the average of the past three months. Open interest was 1.53 million contracts.

--With assistance from Craig Torres and Jeannine Aversa in Washington and Lananh Nguyen in London. Editors: Joe Link, Charlotte Porter

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.


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