Oil Surges 14 Percent After Unexpected Drop in U.S. Stockpiles

Feb. 19 (Bloomberg) -- Crude oil rose 14 percent, the biggest gain in seven weeks, after a U.S. government report showed an unexpected drop in supplies as imports declined.

Inventories fell 138,000 barrels to 350.6 million barrels last week, the first decline this year, the Energy Department said today in a weekly report. Stockpiles were forecast to increase by 3.2 million barrels, according to a Bloomberg News survey. The Organization of Petroleum Exporting Countries agreed to three supply cuts in 2008 to halt sliding prices.

“This shows that the OPEC cuts are starting to have an impact here,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The smaller volume coming from OPEC members was reflected in a big drop in imports.”

Crude oil for March delivery rose $4.86 to settle at $39.48 a barrel at 2:44 p.m. on the New York Mercantile Exchange. Prices are down 11 percent this year.

The March contract expires tomorrow. The more-active April contract increased $2.77, or 7.4 percent, to end the session at $40.18 a barrel.

Imports of crude oil declined 859,000 barrels a day to 8.79 million, the lowest level since September, when ports were shut in the aftermath of hurricanes Gustav and Ike, the report showed.

Supplies at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude is delivered, declined 52,000 barrels to 34.9 million barrels, the report showed. Inventories in the week ended Feb. 6 were the highest since at least April 2004, when the department began keeping records for the location.

Narrower Differential

The price of oil for delivery in April is 70 cents a barrel higher than for March, down from a $2.79 premium yesterday. The spread between the first- and second-month contracts is the lowest since Nov. 20. December futures are $10.06 higher than the front-month contract, versus $12.11 yesterday.

“The slight drop in supply was important for the psychology of the market, and it’s being reflected in the spread,” said Mike Zarembski, senior commodity analyst at OptionsXpress Holdings Inc. in Chicago. “People are running for cover before the contract expires tomorrow.”

Volume in electronic trading on the exchange was 510,386 contracts as of 3:25 p.m. in New York. Volume totaled 507,765 contracts yesterday, 2.4 percent lower than the average over the past three months. Open interest was 1.22 million contracts yesterday. The exchange has a one-business-day delay in reporting open interest and full volume data.

Gasoline Supplies

Gasoline inventories rose 1.11 million barrels to 218.7 million barrels, the Energy Department said. Stockpiles were forecast to fall by 500,000 barrels, according to the median of responses by 16 analysts in the Bloomberg News survey.

Supplies of distillate fuel, a category that includes heating oil and diesel, dropped 813,000 barrels to 140.8 million, the department said. A 1.5 million-barrel decline was forecast.

Fuel demand during the past four weeks averaged 20 million barrels a day, down 0.1 percent from the average over the same period last year, the report showed. Gasoline consumption averaged 8.9 million barrels a day over the past four weeks, up 0.8 percent from a year earlier.

“The most important thing in this report is that it shows demand is no longer falling,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “We have to start looking a lot more at the supply numbers in the weeks ahead. If demand recovers, we will have to start wondering if supplies are sufficient.”

Gasoline futures for March delivery rose 3.34 cents, or 3.1 percent, to settle at $1.0986 a gallon in New York, the first gain in five days. Heating oil for March delivery increased 5.76 cents, or 5 percent, to end the session at $1.2045 a gallon.

The average U.S. pump price for regular gasoline dropped 0.8 cent to $1.949 a gallon, AAA, the nation’s largest motorist organization, said on its Web site today. Prices have declined 53 percent from the record $4.114 a gallon reached on July 17.

OPEC Production

OPEC cut oil production by 3.5 percent in January, according to a Bloomberg News survey. Members with output quotas, all except Iraq, pumped 26.2 million barrels a day, 1.355 million more than their target of 24.845 million barrels a day.

The group will load 22.8 million barrels a day in the month ending March 7, down from 23.5 million a day in the month ended Feb. 7, Oil Movements said in a report today. It’s the lowest volume since February 2004, according to the Halifax, England- based tanker tracker.

Oil also climbed as the euro strengthened against the U.S. currency on speculation that Europe will take steps to address the financial crisis. Investors purchased commodities as a store of value.

Weaker Dollar

“The weaker dollar tends to send people looking for an inflation hedge and at least theoretically will kick up demand overseas because oil will be cheaper for them,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, energy consultant. “A major reason prices were knocked down into the $30s was the strength of the dollar.”

Europe’s currency rose as much as 1.8 percent to $1.276, its biggest intraday gain since Dec. 30. It touched $1.2513 yesterday, the lowest level since Nov. 21.

Brent crude oil for April settlement increased $2.44, or 6.2 percent, to $41.99 a barrel on London’s ICE Futures Europe exchange. Futures touched $39.35 yesterday, the lowest this year.