Bloomberg News

Crude Oil Rises After U.S. Supplies Decline More Than Expected

July 13, 2011

July 13 (Bloomberg) -- Crude oil climbed after a U.S. Energy Department report showed inventories fell more than expected last week and as equities rallied.

Futures rose 0.6 percent after the department said supplies dropped 3.12 million barrels to 355.5 million. Stockpiles were forecast to fall 1.5 million barrels, according to a Bloomberg News survey. Stocks rallied after U.S. Federal Reserve Chairman Ben S. Bernanke said he’s prepared to provide additional stimulus if needed and on Chinese economic growth.

“The pretty good-sized drop in crude stocks, along with the rebound in equities, provided enough firepower to turn this market around,” said Kyle Cooper, director of research for IAF Advisors in Houston.

Crude oil for August delivery rose 62 cents to settle at $98.05 a barrel on the New York Mercantile Exchange. Oil traded at $97.12 before the release of the report at 10:30 a.m. in Washington. Prices have risen 27 percent in the past year.

Brent oil for August settlement advanced $1.03, or 0.9 percent, to end the session at $118.78 a barrel on the London- based ICE Futures Europe exchange. It was the highest settlement since June 14.

The European benchmark’s premium to U.S. futures was $20.73, up from $20.32 at settlement yesterday and down from the record of $22.29 on June 15.

Crude oil imports tumbled 8.7 percent to 9 million barrels a day last week, according to the department.

Gasoline Stockpiles

Supplies of gasoline fell 840,000 barrels to 211.7 million last week, the report showed. A 500,000-barrel gain was projected, according to the median of 15 analyst responses in a Bloomberg News survey. Output dropped 6.6 percent to 8.9 million barrels a day, the least since the week ended May 6.

Gasoline for August delivery surged 5.34 cents, or 1.7 percent, to end the session at $3.1516 a gallon in New York. It was the highest settlement since May 10.

The Fed is ready to “provide additional policy support” if recent economic weakness persists, Bernanke said in prepared testimony before Congress.

“Investors really liked the DOE numbers,” said Stephen Schork, president of the Schork Group Inc. energy advisory company in Villanova, Pennsylvania. “The report, along with the Bernanke comments and the weaker dollar, sent the market over $99. We were unable to break into any new territory and then retreated from the highs.”

The Standard & Poor’s 500 Index rose 0.3 percent to 1,317.72 and the Dow Jones Industrial Average increased 0.4 percent to 12,491.61 at 4:02 p.m. in New York. The dollar dropped 1.2 percent to $1.4141 per euro, and is heading for the biggest decline since May 27. A weaker dollar bolsters the appeal of commodities as an alternative investment.

‘Getting Hammered’

“The dollar is getting hammered and equities are up again, which are providing support for oil,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “The market is still moving around in a $90-to-$100 range and I can’t see it moving much past $100 given the present news.”

Oil in New York traded in a $10.34 range for more than four weeks, staying between $89.61 and $99.95 since June 13.

Futures also rose after a report showed China’s economy grew at a faster pace than expected in the second quarter and the International Energy Agency forecast rising consumption.

Chinese Economic Strength

China’s gross domestic product and industrial output grew 9.5 percent from a year earlier, higher than the median estimate of 9.3 percent in a Bloomberg News survey. Growth was 9.7 percent in the first three months of the year. Industrial output climbed last month the most since May 2010.

The U.S. and China were responsible for 32 percent of global oil demand in 2010, according to BP Plc’s Statistical Review of World Energy released on June 8.

“The market was already primed to rise because of the good news out of China,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “The Chinese economy seems to be humming along quite nicely, which is good for demand.”

Global oil demand growth is set to accelerate in 2012, the IEA said, potentially adding pressure on the Organization of Petroleum Exporting Countries to boost production.

Crude consumption next year will average 91 million barrels a day, an increase of 1.5 million barrels, or 1.6 percent, from 2011, the IEA said in its monthly oil market report. That compares with the OPEC’s forecast that world oil demand will grow at a slower pace for a second year in 2012 as consumption declines in Europe and slows in other industrialized nations.

Oil volume in electronic trading on the Nymex was 637,129 contracts as of 3:32 p.m. in New York. Volume totaled 728,007 contracts yesterday, the highest level since June 23 and 6.3 percent above the average of the past three months. Open interest was 1.54 million contracts, the most since June 17.

--Editors: Richard Stubbe, Dan Stets

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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