Oil Rises, Gasoline Surges to 3-Month High, on Fuel Demand Gain

Feb. 26 (Bloomberg) -- Crude oil rose more than $2 a barrel and gasoline surged to a three-month high after U.S. stockpiles of the motor fuel dropped.

Declining pump prices have spurred demand and cut inventories. Gasoline supplies fell 3.32 million barrels last week, the biggest reduction since September, an Energy Department report showed yesterday. Crude-oil imports dropped as OPEC members cut production in an effort to increase prices.

“The most import factor behind this three-day rally is the improving gasoline fundamentals,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “Inventories are dropping and demand is coming back at an impressive rate.”

Crude oil for April delivery increased $2.72, or 6.4 percent, to $45.22 a barrel at 2:43 p.m. on the New York Mercantile Exchange, the highest settlement since Jan. 26. Prices are up 8.5 percent this month and 1.4 percent this year.

Gasoline futures for March delivery increased 13.37 cents, or 11 percent, to end the session at $1.3004 a gallon in New York, the highest since Nov. 13. It was the biggest one-day increase since Dec. 31.

“Prices are very low compared to where they were six months ago, said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “The improvement in gasoline demand is being driven more by lower prices than any economic recovery.”

The average U.S. pump price for regular gasoline dropped 0.9 cent to $1.882 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.

Gasoline Consumption

U.S. gasoline consumption averaged 9 million barrels a day over the past four weeks, up 1.7 percent from a year earlier, yesterday’s Energy Department report showed. The department measures shipments from refineries, pipelines and terminals to calculate demand.

“This is a gasoline-led rally,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, energy consultant. “There’s been a lot of hoopla about the improvement in gasoline demand. There’s a difference between implied demand, which is measured in the report, and actual consumption.”

Crude oil supplies rose 717,000 barrels to 351.3 million barrels last week, the department said yesterday. Inventories were forecast to increase by 1.25 million barrels, according to the median of responses in a Bloomberg News survey. In January stockpiles increased by a weekly average of 5.46 million barrels.

Lower Imports

Imports dropped 0.3 percent to 8.77 million barrels a day, the lowest since the week ended Sept. 18, when ports were shut in the aftermath of hurricanes Gustav and Ike, the report showed.

Supplies of distillate fuel, a category that includes heating oil and diesel, rose 882,000 barrels to 141.6 million barrels, the Energy Department said.

Heating oil for March delivery rose 5.64 cents, or 4.6 percent, to $1.2941 a gallon in New York, the highest settlement since Feb. 13. Heating oil ended the session lower than gasoline for the first time since August 2007.

OPEC agreed on Dec. 17 to reduce oil supplies starting Jan. 1 to bolster prices. The 11 members of the Organization of Petroleum Exporting Countries with quotas, all except Iraq, cut 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.

Reduced Shipments

OPEC will reduce crude-oil shipments by 1.7 percent in the month ending March 14, according to Oil Movements. Members will load 22.8 million barrels a day in the period, down from 23.2 million a day in the month ended Feb. 14, the Halifax, England- based based tanker tracker said in a report today.

Iran, Venezuela and Iraq said last week that OPEC is prepared to cut production again when it meets on March 15. Ecuadorian Oil and Mines Minister Derlis Palacios said today that no additional reduction was needed.

“U.S. crude-oil supplies aren’t building like they were, and it appears that the OPEC cuts are translating into lower U.S. import levels,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York.

Abu Dhabi National Oil Co. will reduce exports of crude oil in April. The United Arab Emirates state-owned producer will ship 17 percent less of Upper Zakum crude oil than contracted, following a 15 percent reduction for March, the company said in a faxed statement today. Deliveries of Umm Shaif, Lower Zakum and Murban crude will be cut by 15 percent.

Brent crude oil for April settlement increased $2.22, or 5 percent, to end the session at $46.51 a barrel on London’s ICE Futures Europe exchange, the highest since Jan. 26.

Job Cuts

Companies are slashing jobs and orders at a faster pace in the U.S., reports today showed. Orders for durable goods fell 5.2 percent in January, more than twice as much as forecast, Commerce Department figures showed in Washington. The Labor Department said 667,000 Americans filed initial applications for jobless benefits last week, up from 631,000 the prior week.

“I think we are seeing investors desperately latch onto anything bullish,” said Stephen Schork, president of Schork Group Inc. of Villanova, Pennsylvania. “We are looking forward to more economic pain in the months ahead and that will lead to weaker demand.”

Crude oil volume in electronic trading on the exchange was 486,256 contracts as of 3:04 p.m. in New York. Volume totaled 641,172 contracts yesterday, 22 percent higher than the average over the past three months. Open interest was 1.19 million contracts yesterday. The exchange has a one-business-day delay in reporting open interest and full volume data.