Oil Rises to Three-Month High as Supplies Decline

Crude rose to a three-month high after U.S. inventories tumbled and Federal Reserve meeting minutes showed many policy makers backed enacting more stimulus measures soon.

Prices gained 0.4 percent as the Energy Department said supplies dropped to a five-month low last week. Members indicated at the Federal Open Market Committee’s gathering three weeks ago that monetary easing will be needed “fairly soon” unless there are signs of a durable economic pickup, the record released today showed.

“The crude drop is bigger than expected and the inventory report is a little bullish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The Fed minutes showed that we might have some stimulus, which will push up asset prices.”

Oil for October delivery rose 42 cents to $97.26 on the New York Mercantile Exchange, the highest settlement since May 7. Prices have rallied 25 percent from this year’s settlement low of $77.69 on June 28.

Brent crude for October settlement increased 27 cents to end the session at $114.91 a barrel on the London-based ICE Futures Europe exchange.

Oil stockpiles dropped 5.41 million barrels to 360.7 million in the week ended Aug. 17, the Energy Department reported. It was the lowest level since March 23 and the fourth consecutive decline. Analysts surveyed by Bloomberg forecast supplies would drop 250,000 barrels last week.

Imports of oil declined for the first time in three weeks, slipping 5.9 percent to 8.21 million barrels a day.

‘Lower Imports’

“The crude draw was much bigger than expected and that’s the driving force of the market,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “The crude draw is primarily due to lower imports.”

Gasoline inventories fell 962,000 barrels to 202.7 million versus a forecast decrease of 1.35 million barrels. Distillate supplies, which include heating oil and diesel, rose 992,000 barrels, near the predicted gain of 1 million.

Total petroleum demand decreased 6.4 percent to 18.7 million barrels a day. Gasoline consumption slid 2.4 percent to 9.08 million.

“The drop in crude inventories is quite big,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “The lower demand numbers don’t bode well for higher oil prices.”

Refinery utilization slid to the lowest level since June 1, falling to 91.2 percent from 92.6 percent, the report showed.

Fed Minutes

Many participants at the Fed’s meeting said that a new large-scale asset-purchase program “could provide additional support for the economic recovery,” according to the minutes. The FOMC said in a statement after the meeting ended Aug. 1 that it will pump fresh stimulus into the economy if needed to spur growth and cut the jobless rate.

The central bank bought a total of $2.3 trillion in bonds from December 2008 to June 2011 to stimulate the economy in two rounds of asset purchases known as quantitative easing.

Oil also gained on concern that storms would move into the Gulf of Mexico and disrupt supplies. Tropical Storm Isaac may grow into a hurricane on a path toward the west coast of Florida, the U.S. National Hurricane Center said.

The center’s tracking map shows the system crossing Haiti on Aug. 24 and striking Cuba before arriving at the Florida coast below Cape Coral on Aug. 27.

Isaac, the ninth named storm of the Atlantic hurricane season, was about to cross the Leeward Islands as of 2 p.m. East Coast time on its way into the Caribbean Sea, the Miami-based center said in an advisory.

Middle East

Oil has rallied 10 percent this month on concern escalating tension in the Middle East may disrupt supplies. Lebanon’s Prime Minister Najib Mikati expressed concern over “attempts to involve Lebanon more and more in the current conflict in Syria,” according to his official website.

“The market continues to look at what’s going on in the Middle East,” said Marshall Berol, co-portfolio manager of the Encompass Fund in San Francisco, which has about $300 million in assets. “A lot of the inventory numbers have been built into the market.”

The Middle East produced 33 percent of the world’s oil last year and held 79 percent of proved reserves, according to BP Plc (BP/)’s Statistical Review of World Energy, released in June.

In Nigeria, oil workers grouped under the National Union of Petroleum and Natural Gas Workers, or Nupeng, plan to start a national strike tomorrow to protest delays in subsidy payments to fuel importers and retailers, an official said.

Electronic trading volume on the Nymex was 393,340 contracts as of 3:30 p.m. in New York. Volume totaled 502,822 contracts yesterday, 7.8 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 editor responsible for this story: Dan Stets at dstets@bloomberg.net

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