West Texas Intermediate crude rose to a one-month high after supplies fell at Cushing, Oklahoma, the delivery point for the contract. Brent oil’s premium to WTI shrank below $8 for the first time since January 2011.
Futures climbed 1 percent as the Energy Information Administration said that inventories at the storage hub dropped 652,000 barrels to 49.1 million in the week ended May 3. Nationwide stockpiles increased 230,000 barrels to 395.5 million. The Standard & Poor’s 500 Index reached a record and the euro advanced against the dollar.
“The Cushing number is showing that the market is finding solutions to the bottleneck there,” said Adam Wise, who helps manage a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston. “The wide spread between WTI and Brent gave companies the incentive to find routes for the barrels.”
WTI crude for June delivery increased $1 to $96.62 a barrel on the New York Mercantile Exchange, the highest settlement since April 2. The volume of all contracts traded was 30 percent above the 100-day average at 3:52 p.m. Futures are up 5.2 percent this year.
Brent oil for June settlement dropped 6 cents to end the session at $104.34 a barrel on the London-based ICE Futures Europe exchange. Volume for all contracts was 35 percent above the 100-day average.
The European benchmark grade traded at a $7.72 premium to WTI at settlement, down from $8.78 yesterday. The spread is at the narrowest level based on closing prices since Jan. 20, 2011.
U.S. crude stockpiles were projected to increase 2 million barrels, according to the median of 12 analyst responses in a Bloomberg survey.
Refineries operated at 87 percent of capacity last week, up 2.6 percentage points from the seven days ended April 26 and the highest level since January. Units are often reopened in the spring after being idled for maintenance in late winter as attention moves away from heating oil and before the peak season for U.S. gasoline consumption, which runs from late May until early September.
“Crude supplies didn’t grow anywhere near as much as we expected, but we aren’t too concerned because there’s an explanation,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Refinery utilization grew an impressive 2.6 percentage points last week, so we know where the crude’s going.”
Crude output rose 57,000 barrels a day to 7.37 million, the highest level since February 1992, EIA data show. U.S. production has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in the central part of the country.
The S&P 500 (SPX) advanced as much as 0.4 percent to a record 1,632.47 as of 3:52 p.m. in New York. The euro strengthened as much as 0.9 percent against the dollar after German industrial output unexpectedly increased in March, a sign that Europe’s largest economy is returning to growth. A stronger common currency bolsters the appeal of commodities denominated in the dollar as an investment.
“U.S. crude production continues to rise, which has left us with extremely robust supplies,” Wise said. “Equity markets are strong, which in the long run will be positive for energy demand. It seems oil is moving more on overall market sentiment than inventories today.”
Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) switched the direction of the Seaway crude pipeline last year to move barrels from Cushing to the Houston area. The link may average throughput of about 295,000 barrels a day through May, up from a February average of 272,000 barrels, according to a filing with the Federal Energy Regulatory Commission.
Seaway is operating below capacity because of limited offtake capability at the end of the line, which won’t be repaired until next year. The pipeline’s capacity was expanded to 400,000 barrels a day on Jan. 11.
Iraq’s crude exports via a pipeline to Turkey were halted because of sabotage bombing overnight, Asim Jihad, a spokesman for the Iraqi oil ministry, said by telephone from Baghdad. Exports will resume tomorrow, he said. Iraq, the largest producer in the OPEC after Saudi Arabia, exports the bulk of its oil by sea from terminals in the country’s south.
WTI will average $93.17 a barrel this year, down 75 cents from the April projection of $93.92, the EIA, the Energy Department’s statistical arm, said yesterday in its monthly Short-Term Energy Outlook. Brent will average $105.89 in 2013, down $2.07 from last month’s prediction.
Oil production outside the Organization of Petroleum Exporting Countries will rise 2.1 percent to 53.85 million barrels a day in 2013, led by gains in the U.S. and Canada, according to the EIA. U.S. output will climb 14 percent to 7.42 million barrels a day, the EIA said.
Implied volatility for at-the-money WTI options expiring in June was 19.3 percent, down from 21.8 percent yesterday.
Electronic trading volume on the Nymex was 633,743 contracts as of 3:53 p.m. It totaled 579,430 contracts yesterday, 0.4 percent below the three-month average. Open interest was 1.77 million contracts.
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