Oil increased after financial shares led U.S. equities higher and the euro advanced against the dollar for the first time in six days.
Futures rose 0.5 percent as the Standard & Poor’s 500 Index (SPX) headed for its first gain in four days. A stronger euro and weaker dollar bolster oil’s appeal as an investment alternative. Prices dropped as much as 1.9 percent earlier after an Energy Department report showed U.S. stockpiles unexpectedly climbed as production surged to the highest level in 13 years.
“Oil is up because you’re seeing a rise in all risk assets and the euro is showing strength,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “I don’t see this rally continuing because the inventory numbers today were lousy.”
Crude oil for September delivery advanced 47 cents to $88.97 a barrel on the New York Mercantile Exchange. Futures touched $86.84, the lowest intraday level since July 16. Prices are down 10 percent this year.
Brent oil for September settlement rose 96 cents, or 0.9 percent, to end the session at $104.38 a barrel on the London- based ICE Futures Europe exchange.
The S&P 500 climbed 0.1 percent and the Dow Jones Industrial Average advanced 0.6 percent at 3:16 p.m. in New York. The euro rose 0.8 percent to $1.2157. The common currency touched $1.2043 yesterday, the lowest level since July 2010.
U.S. crude supplies rose 2.72 million barrels to 380.1 million last week, the Energy Department report showed. A 1 million-barrel decrease was projected, according to the median of 11 analyst responses in a Bloomberg survey. U.S. crude output advanced 1.9 percent to 6.36 million, the highest level since February 1999.
“The inventory numbers were very bearish,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We’ve been seeing a steady increase in U.S. oil production over the last two years, which is quite a turnaround from the prior trend.”
Crude imports rose 696,000 barrels a day to 9.63 million in the seven days ended July 20, the most since March, according to the department. Fuel imports surged 859,000 barrels to 2.58 million, the biggest gain since the week ended Jan, 7, 2011.
Refineries operated at 93 percent of capacity, up 1 percentage point from the prior week and the highest rate since July 2007. Analysts surveyed by Bloomberg projected that the report would show a 0.1 percentage point decline in utilization to 91.9 percent.
“Production climbed to a new high,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “There was a surge in imports, more than outpacing the increase in refinery runs.”
Gasoline inventories gained 4.13 million barrels to 210 million last week, the biggest increase in 2012. They were forecast to decline 1 million barrels, according to the median of 11 responses in the Bloomberg survey.
Gasoline for August delivery dropped 3.19 cents, or 1.1 percent, to settle at $2.7929 a gallon in New York. It touched $2.7298, the lowest level since July 10, in intraday trading.
“The crude market is higher but gasoline is still very weak,” O’Grady said. “The gasoline market has a number of issues that won’t be solved anytime soon.”
Stockpiles of distillate fuel, a category that includes heating oil and diesel, climbed 1.71 million barrels to 125.2 million last week, the report showed.
“You are seeing higher production while demand continues to be weak,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “The demand numbers for core products such as gasoline, distillate and jet kerosene are not just bearish in themselves. They are also in line with a lackluster economy.”
Gasoline consumption fell 0.5 percent to an average 8.8 million barrels a day in the four weeks ended July 20, leaving demand 3.2 percent lower than a year earlier. Use of distillate fuel dropped 2.4 percent and jet kerosene decreased 5.1 percent in the past four weeks.
Total stockpiles of crude oil and fuel, excluding the government’s Strategic Petroleum Reserve, climbed 10.1 million barrels to 1.11 billion, the highest level since November 2010, the report showed. Supplies have increased more than 10 million barrels four times in the past year.
“There are lots of hydrocarbons around,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “Supplies rose more than 10 million barrels, something we don’t see very much.”
Electronic trading volume on the Nymex was 458,139 contracts as of 3:16 p.m. in New York. Volume totaled 496,638 contracts yesterday, 11 percent below the three-month average. Open interest was 1.39 million.
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