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Crude Oil Rises to 2-Week High After U.S. Inventory Decline
Crude oil was little changed, retreating from a two-week high with U.S. equities after minutes from the Federal Reserve showed policy makers saying the economic outlook has “softened somewhat.”
Oil declined as the Standard & Poor’s 500 Index dropped for the first time in seven sessions. Prices rose earlier after an Energy Department report showed that inventories of crude oil declined more than expected, refineries bolstered operating rates and fuel stockpiles increased.
“Oil is coming back down along with the S&P 500, which continues to a major guide for the market,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We’ve also got a tug of war between the crude and fuel inventories in today’s report.”
Crude oil for August delivery slipped 11 cents to settle at $77.04 a barrel on the New York Mercantile Exchange. Futures reached $78.15 today, the highest intraday price since June 29.
Oil on the Nymex for August delivery is 41 cents a barrel lower than for September, the smallest divergence between front- month contracts since April 20.
Brent crude for August settlement increased 12 cents to end the session at $76.77 a barrel on the London-based ICE Futures Europe exchange. August Brent futures expire tomorrow. The more- active September contract slipped 7 cents to $76.66 a barrel.
The S&P 500 declined 0.4 percent to 1,090.72 at 3:12 p.m. and the Dow Jones Industrial Average lost 36.53 points, or 0.4 percent, to 10,326.50. The indexes gained after the oil market settled, closing little changed.
‘Softening’ Outlook
“The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside,” minutes released today in Washington said. “The changes to the outlook were viewed as relatively modest and as not warranting policy accommodation beyond that already in place.”
Crude-oil supplies fell 5.06 million barrels, or 1.4 percent, to 353.1 million, the most since September, according to the Energy Department. Stockpiles were forecast to slip 1.5 million barrels, a Bloomberg News survey showed. Refineries operated at 90.5 percent of capacity, the highest level since January 2008.
Inventories have dropped 12 million barrels in three weeks to the lowest level since March 19. It’s the longest string of declines since December. Supplies are 7 percent above the five- year average for the period, the department said.
“On the face of it, the crude oil number looks very bullish, but on second look it’s not so worrisome,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “We still have more than 350 million barrels of oil, so stocks are by no means tight.”
Fuel Stockpiles
Gasoline supplies climbed 1.6 million barrels to 221 million in the week ended July 9, the report showed. The 15 analysts surveyed by Bloomberg News were split over whether inventories would rise or fall.
Stockpiles of distillate fuel, a category that includes heating oil and diesel, increased 2.94 million barrels to 162.6 million, almost three times the size of the gain forecast.
Gasoline for August delivery slipped 1.56 cents, or 0.8 percent, to settle at $2.0665 a gallon in New York. Heating oil for August delivery declined 1.13 cents, or 0.6 percent, to end the session at $2.0361 a gallon.
Fuel demand tumbled 4 percent to 18.8 million barrels a day, the lowest level since April 23. It was the biggest one- week decline since March.
“The demand numbers don’t look good,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “They show that consumers are holding back because of uncertainty about the economy.”
Technical Resistance
Crude oil in New York must challenge resistance near $80 or test support at $72.50 to break out of its range, according to Veronique Lashinski, a senior research analyst for Newedge USA LLC in Chicago.
New York oil for September delivery, which will become the front-month contract on July 21, touched $80.82 a barrel on June 21 on the New York Mercantile Exchange, the highest price since May 14.
Crude oil will climb to as much as $90 a barrel by the end of this year and $100 in 2011, T. Boone Pickens, the billionaire energy hedge-fund manager, said today.
Prices will “move up here pretty quick in the third quarter,” Pickens, chairman of Dallas-based BP Capital LLC, said today in an interview on Bloomberg Radio with Tom Keene. Pickens said he expects oil in the range of $85 to $90 a barrel by the end of 2010 and $95 to $100 a barrel in 2011.
Oil volume in electronic trading on the Nymex was 591,708 contracts as of 5:03 p.m. in New York. Volume totaled 683,536 contracts yesterday, 9.6 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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