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Oil Gains as Supplies Decline More Than Expected

Oil reached a three-month high after the Energy Department reported a decline in supply amid rising demand and Middle East tension grew as three nations called on their citizens to leave Lebanon because of a kidnapping threat.

Futures rose 1 percent as supplies dropped 3.7 million barrels and total oil use reached the highest level in nine months last week. Gains accelerated as Saudi Arabia, the United Arab Emirates and Qatar directed their citizens to avoid or depart Lebanon.

“The bigger-than-expected draw in crude is the primary driver of the price,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “The Saudi news is fueling speculation that any type of instability in the Middle East could lead to oil curtailment.”

Oil for September delivery rose 90 cents to $94.33 a barrel on the New York Mercantile Exchange, the highest settlement since May 14. Prices have rallied 11 percent in the second quarter.

Brent crude for September settlement, which expires tomorrow, rose $2.22, or 1.9 percent, to close at $116.25 on the London-based ICE Futures Europe exchange. Brent’s premium to WTI widened $1.32 to $21.92 a barrel, a nine-month high.

Oil inventories dropped to 366.2 million barrels, a four- month low. Analysts surveyed by Bloomberg had expected a decline of 1.5 million. Petroleum consumption jumped 5.7 percent to 20 million barrels a day, the most since Nov. 4, led by a 5.3 percent gain in gasoline demand.

‘Strongest Demand’

“We are seeing some of the biggest, strongest demand for oil in almost a year,” said Carl Larry, president of Oil Outlooks & Opinions LLC in New York. “It’s a significant jump, and that’s where a lot of this oil draw comes from.”

Gasoline stockpiles fell 2.37 million barrels to 203.7 million. Distillate supplies, which include heating oil and diesel, rose 677,000 to 124.2 million. The refinery utilization rate was unchanged at 92.6 percent.

“The crude draw is bigger than expected so you would expect a little bit of a bullish reaction and that’s what we’ve got,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.

Oil has advanced 7.1 percent in August, helped by concern that Middle East tension will disrupt supplies from a region responsible for about one-third of the world’s oil production.

Saudi Statement

The three nations issued the warnings after reports that the Meqdad clan, an extended family that belongs mostly to Lebanon’s Muslim Shiite community, kidnapped more than 20 Syrians in retaliation for the abduction of one of its members in Syria.

Saudi Arabia and Qatar have supported rebels battling President Bashar al-Assad’s government in Syria. Many rebels are Sunni Muslims, while the government is dominated by members of the Alawite sect, an offshoot of Shiite Islam.

“Events like this move the market,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago.

The U.A.E., Saudi Arabia and Qatar are three of the four Arab Gulf members of the Organization of Petroleum Exporting Countries. Kuwait is the fourth.

In Israel, dozens of people crowded in front of a storefront at a Jerusalem shopping mall yesterday to pick up new gas masks, part of civil defense preparations in case the military strikes Iran. Iran produced 2.8 million barrels a day of oil in July, Energy Department data show.

“The Middle East is the main reason that’s keeping oil prices higher,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. “There is a clear debate going on in Israel on whether or not they should attack Iran.”

Electronic trading volume on the Nymex was 684,780 contracts as of 3:11 p.m. in New York. Volume totaled 469,180 contracts yesterday, 14 percent below the three-month average. Open interest was 1.47 million.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editors responsible for this story: Margot Habiby at mhabiby@bloomberg.net; Dan Stets at dstets@bloomberg.net

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