Oil Rises as U.S. Gasoline Supplies Decline, Demand Increases

Feb. 25 (Bloomberg) -- Crude oil rose more than $2 a barrel in New York to the highest close in four weeks after a government report showed that U.S. gasoline supplies dropped as demand strengthened and refineries cut operating rates.

Gasoline stockpiles declined 3.32 million barrels to 215.3 million barrels last week, the Energy Department said today. Consumption of the motor fuel averaged 9 million barrels a day over the past four weeks, up 1.7 percent from the same period last year, as pump prices fell.

“Crude oil is up because gasoline demand is increasing,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. “A lot of refiners shut units for maintenance because the demand wasn’t there. With demand rising they may have to change some of their plans.”

Crude oil for April delivery rose $2.54, or 6.4 percent, to $42.50 a barrel at 2:42 p.m. on the New York Mercantile Exchange, the highest settlement since Jan. 26. Prices are down 4.7 percent this year.

Gasoline futures for March delivery increased 8.3 cents, or 7.7 percent, to settle at $1.1667 a gallon in New York, the highest since Feb. 13.

The average U.S. pump price for regular gasoline dropped 0.9 cent to $1.891 a gallon yesterday, AAA, the nation’s largest motorist organization, said on its Web site. Prices have declined 54 percent from the record $4.114 a gallon reached in July.

‘A Hopeful Sign’

“Gasoline prices are down, making it more affordable, so people are buying more,” Sieminski said. “This is a hopeful sign for the economy as a whole. Lower prices may encourage people to make other purchases, helping the economy.”

Analysts were split over whether the Energy Department’s supply report would show a gasoline inventory increase or decline, according to the median of 15 estimates in a Bloomberg News survey.

Refineries operated at 81.4 percent of capacity, down 0.9 percentage point from the week before, the Energy Department said. Plants are running at the lowest rate since the week ended Oct. 3, when the Gulf Coast was recovering from hurricanes Gustav and Ike. Rates were forecast to drop by 0.1 percentage point.

Companies often shut refinery units for maintenance in January and February as attention shifts away from heating oil and before gasoline use rises.

“Refiners may be going a little far with their maintenance programs this year,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “This could lead to product-supply issues down the road.”

Inventories of crude oil rose 717,000 barrels to 351.3 million barrels, the department said. Supplies were forecast to increase by 1.25 million barrels.

Cushing Supplies

Oil supplies at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude is delivered, declined 358,000 barrels to 34.5 million barrels, the report showed. Stockpiles in the week ended Feb. 6 were the highest since at least April 2004, when the department began keeping records for the location.

Traders who purchased oil futures for March delivery today can sell contracts for delivery in December at a higher price, a condition known as contango.

The price of oil for delivery in May is $2.16 a barrel higher than for April, down from a $2.80 premium yesterday. December futures are up $8.29 from the front month, versus a $9.86 premium yesterday.

“The draw at Cushing should support the prompt Nymex contract and as a result the contango will come in a bit,” Mueller said. “Speculation that OPEC production cuts will limit supply later this year has been a factor behind the contango.”

Output Cut

The 11 members of the Organization of Petroleum Exporting Countries with quotas, all except Iraq, reduced output 3.8 percent to 25.3 million barrels a day in February, consultant PetroLogistics Ltd. of Geneva said Feb. 23. Members have a quota of 24.845 million barrels a day.

Iran, Venezuela and Iraq said last week that OPEC is prepared to cut production again when it meets on March 15. OPEC officials, including Botelho de Vasconcelos, who is also Angola’s oil minister, have said oil prices around $75 a barrel are needed to fund investment.

“I do not believe we will see $75 a barrel oil anytime soon, which is what many of them say they want,” Fadel Gheit, director of oil and gas research at Oppenheimer & Co. in New York, said on Bloomberg Television. “They can say as much as they want, the fact of the matter is we will not get it anytime soon.”

Brent crude oil for April settlement increased $1.79, or 4.2 percent, to end the session at $44.29 a barrel on London’s ICE Futures Europe exchange.

Distillate Inventories

U.S. supplies of distillate fuel, a category that includes heating oil and diesel, rose 882,000 barrels to 141.6 million, the first increase in five weeks, the Energy Department said.

Heating oil for March delivery rose 2.95 cents, or 2.4 percent, to $1.2377 a gallon in New York, the highest settlement since Feb. 13.

Crude oil volume in electronic trading on the exchange was 558,115 contracts as of 3:14 p.m. in New York. Volume totaled 472,862 contracts yesterday, 9.4 percent lower than the average over the past three months. Open interest was 1.18 million contracts yesterday. The exchange has a one-business-day delay in reporting open interest and full volume data.