Oil Surges 14 Percent on Lower-Than-Forecast Fuel Supply Gain

Dec. 31 (Bloomberg) -- Crude oil rose 14 percent, trimming a record annual decline, after a government report showed a smaller-than-expected gain in U.S. fuel supplies.

Stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, climbed in the week ended Dec. 26, the Energy Department report showed. Prices have tumbled 70 percent from a record $147.27 on July 11 as the U.S., Japan and Germany faced their first simultaneous recessions in six decades.

“We are very near the bottom in oil prices, or will reach the bottom in the next few weeks,” said Ehsan Ul-Haq, head of research at Vienna-based JBC Energy GmbH, an oil broker and consultant. Prices will be subdued “as long as stockpiles remain very high,” he said.

Crude oil for February delivery rose $5.57 to $44.60 a barrel at 2:55 p.m. on the New York Mercantile Exchange, the highest settlement since Dec. 12. Futures are down 54 percent this year, the first annual decline since 2001 when oil fell 26 percent, and the biggest drop since trading began in 1983.

Gasoline inventories rose 808,000 barrels to 208.1 million barrels in the week ended Dec. 26, the Energy Department report showed. A 1.7-million-barrel increase was forecast, according to the median of 13 responses in a Bloomberg News survey. Distillate supplies climbed 694,000 barrels to 136 million barrels. Stockpiles were forecast to rise 1.5 million barrels.

Refineries operated at 82.5 percent of capacity last week, down 2.2 percentage points from the week before and the lowest since the period ended Oct. 10 when the Gulf Coast was recovering from hurricanes Gustav and Ike. Analysts forecast a 0.5 percentage-point increase.

‘Ugly’ Numbers

“The refining numbers are ugly,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “I can’t recall seeing utilization numbers this low outside of a hurricane disruption.”

Refiners often shut units for maintenance, also known as turnarounds, in late January and February as heating-oil demand falls and before gasoline use rises.

Oil may rebound next year to average $60 a barrel as the Organization of Petroleum Exporting Countries makes record production cuts to counter the deepest economic slump since World War II, according to the median of estimates by 33 analysts surveyed by Bloomberg. That would be a 35 percent gain from today’s price.

Quota Compliance

“The economy will remain the main focus for the near term and any bullish stories we get from OPEC will have limited impact,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “It does appear OPEC members are making efforts to comply with quotas. We will have to see if the trend continues.”

The number of people in the U.S. collecting unemployment benefits jumped to the highest level since 1982, the Labor Department said today in Washington.

Oil also rose on concern that supplies from the Middle East may be disrupted amid a conflict between Israel and Hamas in the Gaza Strip, and as Russia threatened to halt natural-gas shipments to Ukraine tomorrow for the second time in three years.

“This week was a throwback week with geopolitical risk returning as a market factor due to the Israel-Hamas conflict and the Ukraine-Russia row,” said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. “To keep prices at the recent extreme low, the world needs to be a quiet place both economically and geopolitically.”

Volume in electronic trading on the exchange was 305,773 contracts as of 3:08 p.m. in New York. Volume totaled 256,622 contracts yesterday, down 46 percent from the average over the past 3 months.

Gasoline Surges

Gasoline futures for January delivery climbed 12.29 cents, or 14 percent, to settle at $1.0082 a gallon in New York. Heating oil for January delivery increased 11.77 cents, or 9.1 percent, to end the session at $1.4057 a gallon. The January gasoline and heating-oil futures contracts expired today.

Crude oil supplies rose 549,000 barrels to 318.7 million barrels last week. Inventories were forecast to decline 1.45 million barrels, according to the Bloomberg News survey.

“We have ample crude-oil supplies and a minor surplus in supplies of the products,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “If we have a heavy turnaround period, the surplus in products could soon turn into a deficit.”

U.S. fuel consumption during the four weeks ended Dec. 26 averaged 19.9 million barrels a day, down 3.7 percent from a year earlier, the report showed.

Brent crude oil for February settlement rose $5.44, or 14 percent, to settle at $45.59 a barrel on London’s ICE Futures Europe exchange.

There will be no floor trading on Nymex tomorrow. Electronic trading will shut at 5:15 New York time today and resume at 6 p.m. tomorrow as part of the Jan. 2 session.