Crude Oil, Gasoline Futures Increase as U.S. Refiners Curb Operating Rates

Crude oil rose to a six-week high after gasoline surged on a report that U.S. refineries cut operating rates and supplies of the motor fuel declined.

Refineries operated at 87.9 percent of capacity, down 1.2 percentage points from the prior week. Gasoline supplies fell 636,000 barrels to 218.3 million last week, the Energy Department said. Analysts surveyed by Bloomberg News were split over whether stockpiles of the fuel would rise or fall.

“The refinery utilization number is pulling up the products markets and that’s supporting crude,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas- based energy consultant. “This definitely looks like a product- driven rally.”

Crude oil for July delivery rose 73 cents, or 1 percent, to $77.67 a barrel on the New York Mercantile Exchange, the highest settlement price since May 5. Futures are up 10 percent from a year ago.

Gasoline climbed 2.37 cents, or 1.1 percent, to close at $2.1452 a gallon in New York. It was the highest settlement since May 13. Heating oil for July delivery increased 4.16 cents, or 2 percent, to settle at $2.1101 a gallon, the highest level since May 13.

U.S. gasoline consumption peaks from the Memorial Day weekend in late May to Labor Day in early September. Gasoline demand rose 1.6 percent to 9.34 million barrels a day, the highest level since the week ended Aug. 28.

“The drawdown in gasoline was somewhat supportive,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “Both gasoline demand and draws usually peak after the July 4 holiday.”

Crack Spread

The decline in gasoline supplies and refinery operating rates pushed the margin, or crack spread, for processing three barrels of oil into two of gasoline and one of heating oil to the highest level since June 3. The margin increased 5.9 percent to $12.097, based on futures prices.

“The drop in refinery runs comes as a surprise given how strong the margins are,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts.

Supplies of crude oil rose 1.69 million barrels to 363.1 million in the week ended June 11, the department said. Stockpiles were forecast to fall 1 million barrels, according to the median of 15 analyst responses in the Bloomberg News survey.

Inventories of distillate fuel, a category that includes diesel and heating oil, increased 1.8 million barrels to 156.6 million. A 1-million-barrel gain was forecast.

“Demand is creeping up, and there’s plenty of supply to meet any increase,” Mueller said. “The fundamental story is unchanged.”

BP Promise

BP Plc Chairman Carl-Henric Svanberg agreed to provide $20 billion to pay “all proper claims” from the Gulf of Mexico oil spill after what he called a constructive meeting with President Barack Obama.

“He’s frustrated because he cares about the small people, and we care about the small people,” Svanberg said today after the White House meeting. “I hear comments sometimes that large oil companies are greedy companies that don’t care. That is not the case in BP. We care about the small people.”

Svanberg spoke after meeting Obama and his senior advisers to hammer out the plan for compensating Gulf Coast residents and businesses affected by the oil spill from a damaged BP well. The chairman apologized for the oil spill, which he called an accident that shouldn’t have happened.

Moratorium

The spill began when a rig sank April 22, two days after the well it was drilling exploded, killing 11 workers. The U.S. government in May extended a moratorium on deepwater drilling permits by six months and ordered a halt to exploratory wells after the explosion.

“The political risk to U.S. production in the Gulf is underpinning this market,” said John Kilduff, a partner at Round Earth Capital, a New York-based hedge fund that focuses on food and energy. “This is an unusual situation because it’s the first time I can recall that political risk in this country has had an impact on the market.”

Brent crude oil for August settlement rose $1.04, or 1.4 percent, to end the session at $78.14 a barrel on the London- based ICE Futures Europe exchange.

Oil volume on the Nymex was 612,951 contracts as of 3:12 p.m. in electronic trading in New York. Volume totaled 617,222 contracts yesterday, 21 percent less than the average of the past three months. Open interest was 1.34 million contracts.

The exchange has a one-business-day delay in reporting open interest and full volume data.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

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