Bloomberg News

Oil Rises for Third Day as Inventories Drop Most in a Decade

December 21, 2011

Dec. 21 (Bloomberg) -- Oil rose for a third day as U.S. inventories declined the most in a decade.

Crude gained 1.5 percent after the Energy Department reported supplies fell 10.6 million barrels to 323.6 million. It was the largest decline since Feb. 16, 2001, and almost five times the 2.13 million-barrel drop that was the median of 12 analyst estimates in a Bloomberg News survey. Oil also advanced as imports slipped to a three-year low.

“This is a shocker and is going to be bullish for oil,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “This is definitely going to get some of the bears scared out of the market in the short term.”

Crude oil for February delivery increased $1.43 to settle at $98.67 a barrel on the New York Mercantile Exchange. Oil traded at $98.17 before the release of the report at 10:30 a.m. in Washington, then jumped to $99.25 before settling at a one- week high. Prices have gained 8 percent this year.

Brent oil for February rose 98 cents, or 0.9 percent, to settle $107.71 on the London-based ICE Futures Europe exchange.

Refiners are trying to reduce inventories this month to minimize their taxes in Texas, Andy Lipow, president of Lipow Oil Associates LLC in Houston, said in a telephone interview before the report. Texas and Louisiana assess taxes based on the fair-market value of inventories on Jan. 1.

“This is accomplished by increasing exports of product and minimizing imports of crude oil,” Lipow said.

Refiners typically then rebuild stockpiles in January.

Gasoline, Distillates

Stockpiles at Cushing, Oklahoma, the delivery point for Nymex oil futures, slid 990,000 barrels to 30.2 million, the Energy Department report showed. Oil imports dropped to 7.58 million barrels a day, the lowest level since September 2008.

Gasoline inventories slid 412,000 barrels to 218.4 million. Distillate fuels, which include diesel and heating oil, dropped 2.35 million barrels to 139.1 million. Total petroleum demand increased 5 percent to 19.3 million barrels a day.

Oil also rose after the European Central Bank said it will lend euro-area banks a record amount for three years. The Frankfurt-based ECB awarded 489 billion euros ($645 billion) in 1,134-day loans today, the most ever in a single operation.

The lending is more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which will be lent at the average of its benchmark interest rate, which is currently 1 percent, over the period of the loans.

Equities, Dollar

Oil pared gains from the intraday high as U.S. equities declined and the dollar strengthened against other currencies.

“The falling stocks are suppressing the impact of the 10 million-barrel drop in storage,” said James Williams, an economist at WTRG Economics, an energy research firm in London, Arkansas.

The Standard & Poor’s 500 Index and the Dow Jones Industrial Average declined as much as 0.9 percent before erasing their losses by the end of the day. The Dollar Index, which tracks the U.S. currency against six major peers including the euro and the yen, increased as much as 0.3 percent. A stronger dollar reduces oil’s appeal as an investment alternative.

Oil volume in electronic trading on the Nymex was 378,514 contracts as of 3:38 p.m. in New York. Volume totaled 435,265 yesterday, 32 percent below the three-month average. Open interest was 1.3 million contracts.

--With assistance from Grant Smith in London and Timothy R. Homan in Washington. Editors: Richard Stubbe, Dan Stets

To contact the reporter on this story: Moming Zhou in New York at Mzhou29@bloomberg.net;

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


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