Oil Trades Near $36 After Bigger-Than-Expected Jump in Supplies

Feb. 12 (Bloomberg) -- Crude oil traded near $36 a barrel after dropping yesterday to its lowest in four weeks as a U.S. government report showed a bigger-than-forecast increase in inventories.

Supplies rose 4.72 million barrels to 350.8 million barrels last week, the Energy Department said. Stockpiles were forecast to climb by 2.75 million barrels, according to a Bloomberg News survey. Prices for delivery in future months are higher than for earlier ones, a situation known as contango, allowing buyers to profit from hoarding oil.

“We have a glut of supply in the worldwide market,” said Stephen Schork, president of Schork Group Inc. of Villanova, Pennsylvania. “There’s contango in the market, which is going to encourage further increases.”

Crude oil for March delivery rose 19 cents, or 0.5 percent, to $36.13 a barrel at 10:48 a.m. Sydney time on the New York Mercantile Exchange.

Yesterday, oil fell $1.61, or 4.3 percent, to $35.94 a barrel in New York , the lowest settlement since Jan. 15. Oil is down 19 percent this year and 62 percent from a year ago.

The price of oil for delivery in April is $6.43 a barrel higher than for March. December futures are up $17.75 from the front month.

Crude oil inventories have gained in 18 of the past 20 weeks, leaving stockpiles 16 percent higher than the five-year average for the period, the department said yesterday.

Supplies at Cushing, Oklahoma, where oil traded on Nymex is stored, climbed 1.7 percent to 34.9 million barrels last week, the highest since at least April 2004, when the department began keeping records for the location.

Gasoline Inventories

Gasoline inventories fell 2.66 million barrels to 217.6 million, the biggest drop since September. A 500,000 barrel increase was forecast, according to the median of 15 analyst responses in the Bloomberg News survey.

Gasoline futures for March delivery climbed 2.59 cents, or 2.1 percent, to $1.2698 a gallon in New York yesterday.

“The results were outside of the range of expectations of just about everybody,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “It’s still a mixed bag because while crude-oil inventories posted a big gain, there was a big drop in gasoline.”

U.S. refineries operated at 81.6 percent of capacity last week, down 1.9 percentage points from the prior week, and the lowest since the period ended Oct. 3 when the Gulf Coast was recovering from hurricanes Gustav and Ike, the report showed. Analysts forecast that there would be no change.

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

Refinery Maintenance

“Refineries are using this low-demand period to perform overdue maintenance,” Armstrong said. “They put off maintenance the last two years because prices were high and they wanted to maximize output. In the long run this will be good for the industry.”

The average U.S. pump price for regular gasoline rose 1.2 cents to $1.94 a gallon, AAA, the nation’s largest motorist organization, said on its Web site yesterday. Prices have declined 53 percent from the record $4.114 a gallon reached on July 17.

“The only good thing about the economic downturn has been lower gasoline prices,” said Mike Zarembski, senior commodity analyst at OptionsXpress Holdings Inc. in Chicago. “It’s acted as a tax cut for consumers.”

The Organization of Petroleum Exporting Countries pumped 29 million barrels a day of crude oil in January, 950,000 barrels less than in December, as the 12-member group implemented previously announced supply cuts, the International Energy Agency said in its monthly report.

Fourth Reduction

The group may decide on a fourth supply reduction in six months to halt the plunge in oil prices and encourage oilfield investment when ministers gather for their next scheduled meeting March 15 in Vienna.

“The inventory numbers show that there’s a lot of excess oil supply on the market despite OPEC production cuts and the possibility for further ones,” said Rachel Ziemba, an analyst at RGE Monitor, an economic research company in New York.

Brent crude oil for March settlement fell 33 cents, or 0.7 percent, to end the session at $44.28 a barrel on London’s ICE Futures Europe exchange yesterday. Brent futures were at a $8.34 premium over West Texas Intermediate, the grade that’s traded in New York.

The IEA, in its report yesterday, cut its global oil-demand forecast for 2009, projecting consumption will decline by 1 million barrels a day as the global economic slowdown deepens, the biggest drop since 1982.

The IEA, which advises 28 developed nations on energy policy, trimmed its 2009 forecast by 570,000 barrels from last month to 84.7 million a day because of a weaker outlook from the International Monetary Fund.