Oil Supply Drops in Survey as U.S. Refinery Demand Climbs: Energy Markets

U.S. crude-oil supplies probably dropped to their lowest level in three months as refinery demand increased with the end of seasonal maintenance, a Bloomberg News survey showed.

Inventories fell 2 million barrels, or 0.6 percent, in the seven days ended Nov. 19 from 357.6 million a week earlier, according to the median of 16 analyst estimates before an Energy Department report tomorrow. It would be a third week of declines and leave stockpiles at the lowest level since Aug. 13. Fourteen of the respondents forecast a decrease and two predicted a gain.

Companies shut units for maintenance in autumn when gasoline use falls and winter heating-oil demand has yet to increase. The crack spread, or profit for processing three barrels of oil into two of gasoline and one of heating oil, rose to a four-month high last week as fuel demand climbed.

“Refinery utilization is likely to rise as seasonal maintenance ends,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “Product demand is up and refinery demand for crude is higher as well. We should see further draws in the weeks ahead.”

Crude oil for January delivery declined 49 cents, or 0.6 percent, to settle at $81.25 a barrel today on the New York Mercantile Exchange. Futures have dropped 8.3 percent since touching a two-year intraday high of $88.63 on Nov. 11, on speculation that China will raise interest rates and concern that Europe’s debt crisis will spread.

Refinery Operations

Refinery operations surged 1.6 percentage points to 84 percent of capacity in the week ended Nov. 12, the biggest gain since August, last week’s Energy Department report showed. Refinery runs, or the amount of crude oil input to processing units, increased 1.5 percent to 14.3 million barrels a day during the period, the highest level since September.

Refineries probably bolstered operating rates 0.4 percentage point to 84.4 percent last week, the highest level since September, according to the Bloomberg News survey.

Hess Corp., the New York City-based oil company, said it returned to normal production levels at its Port Reading, New Jersey, refinery over the weekend. The company completed work on a fluid catalytic cracker after idling production last week. The plant can produce about 70,000 barrels a day of gasoline and other fuels, according to the company’s website.

Husky Energy Inc. completed maintenance on a coker and fluid catalytic cracker at its Lima, Ohio, refinery and has begun the restart process, Graham White, a company spokesman, said yesterday. The plant can process 155,000 barrels of oil a day, according to data compiled by Bloomberg News.

Crack Spread

The crack spread jumped to $13.093 a barrel on Nov. 18, the highest level since June. The margin was up 0.6 percent at $9.046 at 3:09 p.m., based on New York futures prices.

“Some refiners probably want to book sales before the end of the year,” John Felmy, chief economist with the Washington- based American Petroleum Institute, said in a telephone interview.

Imports of crude oil fell 2.8 percent to 7.86 million barrels a day in the week ended Nov. 12, the lowest level since December, last week’s Energy Department report showed.

Some analysts say refiners are also lowering inventories to reduce their assets at the end of the year.

“The inventory drops are principally a function of refinery inventory management,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “There are two ways refiners can reduce stockpiles. They can cut imports or increase refinery runs.”

Demand Increase

Total consumption of petroleum products averaged 19.3 million barrels a day in the four weeks ended Nov. 12, up 3.7 percent from 18.6 million during the same period a year earlier, according to the Energy Department.

“It’s primarily a crude-oil story this week,” said Tom Pawlicki, an analyst at MF Global Holdings Ltd. in Chicago. “Refineries have been increasing operating rates this month.”

Gasoline stockpiles decreased 1.25 million barrels, or 0.6 percent, from 207.7 million, the survey showed. The drop would leave supplies at the lowest level since August 2009. Seventeen respondents gave product-supply estimates. Twelve of the analysts projected a decline, three forecast an increase and two said there was no change.

Supplies of distillate fuel, a category that includes heating oil and diesel, probably fell 1.5 million barrels, or 0.9 percent, from 158.8 million, the survey showed. Fifteen of the analysts anticipated a slide and two said there was no change.

The department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington.

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

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

Nov. 19 (Bloomberg) -- Edward Morse, head of commodities research at Credit Suisse Group AG, talks about the outlook for crude oil prices, supply and demand. Morse speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)