Oil Futures Advance as U.S. Jobless Claims Slow, Crude Stockpiles Decline

Crude oil rose to a one-week high as U.S. inventories tumbled after Hurricane Alex disrupted output and deliveries in the Gulf of Mexico. Jobless claims also fell.

Inventories dropped 4.96 million barrels to 358.2 million, the biggest decline since September, the Energy Department said. Stockpiles were forecast to decrease by 2 million barrels. Fuel demand climbed to a five-week high. The Labor Department reported that the number of people applying for jobless benefits slipped a greater-than-forecast 21,000 in the week ended July 3.

“A big drop in inventories and rising demand are a bullish combination,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Crude oil for August delivery rose $1.37, or 1.9 percent, to $75.44 a barrel on the New York Mercantile Exchange, the highest settlement since June 30. Futures are up 25 percent from a year ago.

Brent crude for August delivery climbed $1.20, or 1.6 percent, to settle at $74.71 a barrel on the London-based ICE Futures Europe exchange.

The next technical target for the August contract in New York is resistance at $75.90 to $76, said Veronique Lashinski, a senior research analyst for Newedge USA LLC in Chicago. If that gives in, the next target will be $76.90, she said.

A close below $73.88 would point to a short-term corrective decline, with futures heading toward $72, Lashinski said.

Alex, the earliest hurricane of the Atlantic season since 1995, made landfall in northeastern Mexico June 30. Almost 421,000 barrels of daily oil output, or 26 percent of Gulf of Mexico production, was shut-in on the day the storm hit shore.

Import Disruption

“The hurricane disrupted imports and offshore production,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “We’ll probably see a bump in supply when next week’s report comes out.”

Total U.S. fuel consumption increased 3.2 percent to 19.6 million barrels a day, the highest level since the week ended May 28, the Energy Department said today in a weekly report.

Gasoline inventories rose 1.32 million barrels to 219.4 million in the week ended July 2, the report showed. Stockpiles were estimated to climb by 100,000 barrels, according to the median of 15 analyst estimates in a Bloomberg News survey.

“The gasoline stock increase in the week ended July 2 left us in good shape, given that the driving season has only two months to go,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Refineries operated at 89.8 percent of capacity last week, up 1.4 percentage points from the prior week. The industry operated at the highest rate January 2008.

Crack Spread

“The spread has been strong, encouraging refiners to increase output and increase profits,” Mueller said. “If you continue to see fuel stockpiles rise, profits will dip and with it refinery utilization rates.”

The increase in fuel supplies helped narrow the margin, or crack spread, for processing three barrels of oil into two of gasoline and one of heating oil by 0.4 percent to $10.178 a barrel, based on New York futures prices.

The number of Americans applying for jobless benefits last week fell to 454,000, a level that indicates improvement in the labor market is taking time to develop. Economists had forecast jobless applications would decline to 460,000 from an initially reported 472,000 for the prior week, according to the median of 36 projections in a Bloomberg survey.

“Any time the jobless number dips that much, it is going to reinforce the outlook for the economy,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston.

IMF Forecast

The International Monetary Fund raised its forecast for global growth this year, reflecting a stronger-than-expected first half. The world economy will expand 4.6 percent in 2010, the biggest gain since 2007, compared with an April projection of 4.2 percent, the Washington-based organization said in revisions yesterday to its World Economic Outlook.

Canada and the U.S. are leading advanced economies out of the worst recession since World War II, trailed by euro-area countries that need additional measures to boost confidence in their banks, the IMF said. Faster expansions in Brazil, China and India are helping to protect the global recovery as a sovereign-debt crisis weighs on Europe, the IMF said.

German industrial production climbed in May as the global recovery fueled demand for goods from Europe’s largest economy. Production rose 2.6 percent from April, when it gained a revised 1.2 percent, the Economy Ministry said. Economists had forecast a 0.9 percent gain, according to a Bloomberg News survey.

Better Demand

“The IMF increased the economic growth forecast, and that means better demand for oil, and the German economic numbers were very strong today,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. “The global growth engine is chugging along. That is the main catalyst for oil going up today.”

Oil volume in electronic trading on the Nymex was 489,397 contracts as of 3:17 p.m. in New York. Volume totaled 503,021 contracts yesterday, 36 percent below the average of the past three months. Open interest was 1.28 million contracts.

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

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