Crude Oil Futures Tumble After Unexpected Increase in U.S. Fuel Supplies

Crude oil tumbled after an Energy Department report showed unexpected increases in inventories of gasoline and distillate fuels.

Oil slipped 0.5 percent after the department said gasoline supplies rose 3.81 million barrels to 214 million last week. They were forecast to fall 300,000 barrels, a Bloomberg News survey showed. Supplies of distillate fuels, including heating oil and diesel, climbed 2.15 million barrels.

“The gains in gasoline and distillate supplies show that there’s no problem with supply and that the demand picture isn’t that strong,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts.

Crude oil for January delivery decreased 41 cents to settle at $88.28 a barrel on the New York Mercantile Exchange. Futures are up 22 percent from a year ago.

Brent crude oil for January settlement declined 62 cents, or 0.7 percent, to end the session at $90.77 a barrel on the London-based ICE Futures Europe exchange.

Supplies of distillate fuel were projected to drop 900,000 barrels, according to the median of 17 analyst responses in the Bloomberg survey.

Demand for distillate fuel, averaged over the past four weeks, fell 4.7 percent from a week ago to 3.73 million barrels a day, the department said. Gasoline consumption edged 0.3 percent higher to 8.96 million barrels a day.

Inventories of crude oil fell 3.82 million barrels to 355.9 million, the department said. Supplies were forecast to decrease by 1.4 million barrels.

“Traders know that crude oil inventories generally fall in December, which mitigates against the big draw,” Mueller said. “The crude numbers are being looked at as noise.”

Chinese Interest Rates

Oil also declined on signals that China, the world’s biggest energy-consuming country, will raise interest rates. China said it will release consumer-price-index data on Dec. 11, two days earlier than planned, fanning speculation about an increase.

The ruling Communist Party announced on Dec. 3 the country will shift to a “prudent” monetary policy next year from a “moderately loose” stance as the government seeks to combat accelerating inflation.

“Traders are looking ahead at a possible rise in Chinese interest rates,” said Andre Julian, chief financial officer and senior market strategist at OpVest Wealth Management in Irvine, California. “If the rates are raised too much, it could have a big impact on oil demand. This is a reason for OPEC to put off making any changes at the upcoming meeting.”

The Organization of Petroleum Exporting Countries, which accounts for 40 percent of global supply, will maintain the limits set in 2008 when representatives gather in Quito, Ecuador, on Dec. 11, according to all but one of 39 analysts and traders in a Bloomberg News survey.

Mexican Oil

Petroleos Mexicanos, the Mexican state oil company, may boost Mexican oil output to 3 million barrels a day in 10 years from 2.56 million after lifting a ban that forbids private oil companies from drilling in the country, Juan Jose Suarez Coppel, the company’s chief executive officer, said on CNBC.

Pemex will put private service contracts out for bids, pay a percentage of production costs and Mexico will still own the oil, he said.

Mexico was the third-biggest source of U.S. oil imports during the first nine months of this year, according to the Energy Department.

“The Mexican news is a very big deal,” said Phil Flynn, a Chicago-based analyst and trader with investment adviser PFGBest. “Now they will have access to technology, which has the potential to reverse the decline in production.”

Pemex is likely to post a seventh straight year of output reductions in 2011. Production will probably average 2.55 million barrels a day next year, down from 2.58 million in 2010, Mexican Energy Minister Georgina Kessel said today in an interview.

Tax Cut Extension

Oil surged to $90.76 a barrel yesterday, the highest intraday price since Oct. 8, 2008, after President Barack Obama said that he’ll agree to a two-year extension of tax cuts.

“We’re under pressure because oil failed to decisively break out above $90 yesterday,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “That doesn’t change my view that we are moving higher and will reach $105 at some point during the first half of next year.”

The tax deal could raise gross domestic product by as much as half a percentage point to about 3.1 percent next year, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. Tom Porcelli, a senior economist at RBC Capital Markets Corp. in New York, is increasing his growth forecast for 2011 by one point, also to 3.1 percent.

Oil volume on the Nymex was 683,773 contracts as of 3:12 p.m. in electronic trading in New York. Volume totaled 1.02 million contracts yesterday, the highest since Sept. 10 and 45 percent above the average of the past three months. Open interest was 1.37 million contracts.

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.

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