Bloomberg News

Oil Extends Gain as Distillate, Gasoline Inventories Drop

April 11, 2012

Oil rose after the U.S. Energy Department said that fuel stockpiles declined and as a European Central Bank official signaled the lender may act to stem the spread of the region’s debt crisis.

Futures climbed 1.7 percent after the department reported that gasoline inventories fell 4.28 million barrels last week. Supplies of distillate fuel, a category that includes heating oil and diesel, dropped 4 million barrels. Oil also gained after Benoit Coeure, a member of the ECB executive board, suggested the bank may restart bond purchases for Spain.

“The drawdown in gasoline and distillate was the big surprise today,” said Chris Dillman, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The product supply numbers are sending the entire market higher.”

Crude oil for May delivery rose $1.68 to settle at $102.70 a barrel on the New York Mercantile Exchange. Prices are up 3.9 percent this year.

Brent oil for May settlement increased 30 cents, or 0.3 percent, to end the session at $120.18 a barrel on the London- based ICE Futures Europe exchange. The European benchmark contract traded at a $17.48 premium to New York futures, the least since March 21.

Gasoline inventories dropped to 217.6 million barrels, the lowest level since December. A decline of 1.38 million barrels was the median estimate of analysts in the Bloomberg survey. The industry-funded American Petroleum Institute said yesterday that supplies rose 1.18 million barrels to 223 million, or 5.38 million more than the DOE total.

‘Huge Disconnect’

“There’s a huge disconnect between the DOE and API data,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We have two sets of data ostensibly measuring the same thing, which are radically different. The API had gasoline supplies rising 1.2 million barrels while the DOE showed a 4 million-barrel drop.”

Distillate fuel inventories dropped to 131.9 million barrels, the lowest level since December 2008, according to the department. Stockpiles were forecast to fall 250,000 barrels. The API showed distillate inventories at 134.7 million.

Crude supplies rose 2.79 million barrels to 365.2 million, the highest level since June, the report showed. Stockpiles were forecast to increase 2 million. The API showed crude inventories at 365.9 million.

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 survey.

Equities, Euro

Equities rose and the euro advanced against the dollar amid speculation that an ECB bond-purchase program may cut Spain’s borrowing costs. Prime Minister Mariano Rajoy’s three-month-old government is struggling to convince investors it can reduce the budget deficit.

“Oil is getting some support from a weaker greenback amid some ECB reassurances,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “We also have a general rebound across the board along with equities after losses yesterday, though it seems this may be short-lived.”

The euro strengthened as much as 0.6 percent versus the dollar. A rising euro increases the appeal of dollar-denominated raw materials as an investment. The Standard & Poor’s 500 Index and the Dow Jones Industrial Average increased 0.7 percent.

U.S. Economy

The Federal Reserve said the economy of the U.S., the world’s biggest crude-consuming country, maintained its expansion in all 12 of its regions as manufacturing, hiring and retail sales showed signs of strength last month.

“The economy continued to expand at a modest to moderate pace from mid-February through late March,” the Fed said today in its Beige Book business survey, published two weeks before the Federal Open Market Committee meets to set monetary policy.

Oil has fallen 7.1 percent since reaching a 2012 high of $110.55 in intraday trading on March 1 as tension grew between Western nations and Iran over the country’s nuclear program.

“The market is still in a down trend and should soon be below $100,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “There is no fundamental reason to be a buyer of crude at these levels. There is still $4 to $5 built into the price because of the Iranian tension.”

Iran and the five permanent members of the United Nations Security Council plus Germany are set to hold their first negotiations in 15 months beginning April 14 in Istanbul. Saeed Jalili, secretary of Iran’s Supreme National Security Council, said his nation plans to offer “new initiatives” at the talks. The last round ended without agreement.

There is still time for conduct diplomacy with Iran, Secretary of State Hillary Clinton said, speaking at a meeting of Group of Eight foreign ministers in Washington today.

‘Uncharted Waters’

“We’re moving into uncharted waters with Iran,” Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, said at a New York Times conference on energy in New York. The oil market is going to stay “very volatile” because of the Iranian tension, he said.

Electronic trading volume on the Nymex was 552,883 contracts as of 3:10 p.m. in New York. Volume totaled 639,126 contracts yesterday, 1.1 percent below the three-month average. Open interest was 1.56 million.

To contact the reporters 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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