WTI Oil Advances on Speculation Fed Will Keep Stimulus

West Texas Intermediate oil rose for a third day, advancing with equities on speculation the Federal Reserve will maintain stimulus after a report showed slower-than-estimated economic growth.

Futures gained as the Standard & Poor’s 500 Index (SPX) rallied after the U.S. revised lower its reading for first-quarter economic growth. Prices rebounded after slipping 1.7 percent in intraday trading when the Energy Information Administration reported crude, gasoline and diesel supplies all gained last week as refineries increased operating rates.

“There was an initial reaction to the fresh inventory data and we saw prices fall,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “It didn’t take long for us to return to tracking equities. The markets aren’t going to fall a great deal as long as the Fed is continuing with stimulus.”

WTI crude for August delivery rose 18 cents to $95.50 a barrel on the New York Mercantile Exchange, the highest settlement since June 19. The contract dropped as low as $93.68. The volume of all futures traded was 6.6 percent above the 100-day average for the time of day.

Brent oil for August settlement climbed 40 cents, or 0.4 percent, to end the session at $101.66 a barrel on the London-based ICE Futures Europe exchange. Volume for all contracts was 25 percent lower than the 100-day average.

The European benchmark grade traded at a $6.16 premium to WTI based on settlement prices. The spread was $5.94 at yesterday’s close, the narrowest since January 2011.

Quarterly Decline

WTI is down 1.8 percent this quarter amid speculation that the Fed will pare stimulus and as China’s economic growth shows signs of slowing. Brent futures are down 7.6 percent in the quarter.

The S&P 500 increased 1.1 percent. Gross domestic product expanded at a revised 1.8 percent annualized rate from January through March, down from a prior estimate of 2.4 percent, the Commerce Department said. The 0.6 percentage-point reduction was the biggest for a final reading of GDP since the figure for the third quarter of 2009.

“The terrible GDP number gives the Fed room to continue doing what they’ve been doing,” said John Kilduff, a partner at Again Capital LLC, a New York hedge fund that focuses on energy. “There probably won’t be a tapering of stimulus anytime soon after this large GDP revision.”

Rising Stockpiles

U.S. crude stockpiles rose 18,000 barrels to 394.1 million, according to the EIA, the Energy Department’s statistical unit. The median estimate of analysts surveyed by Bloomberg was a decline of 1.75 million. Supplies reached 397.6 million on May 24, the highest level since 1931.

Crude production advanced 1.9 percent to 7.26 million barrels a day last week, the EIA said. Output reached 7.37 million in the week ended May 3, the most since February 1992. 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.

Surging North American crude output has bolstered stockpiles at Cushing, Oklahoma, the delivery point for WTI. Inventories at the hub increased 664,000 barrels to 49.3 million on June 21, the report showed. Stockpiles reached a record 51.9 million barrels in the week ended Jan. 11.

“The Cushing numbers were up strongly,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York. “This shows that despite the construction of new pipelines, there still isn’t enough transport capacity to deal with increasing output.”

Fuel Inventories

Gasoline stockpiles rose 3.65 million barrels to 225.4 million, the most for any week in June since 1999. Supplies of distillate fuel, a category that includes heating oil and diesel, increased 1.57 million barrels to 123.2 million.

“This report was bearish across the board,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Refinery runs climbed and we still didn’t get a draw in crude stocks. There is more of just about everything.”

Demand for gasoline rose 0.6 percent in the week ended June 21 to 8.89 million barrels a day. Total petroleum consumption increased 3 percent to 19 million.

Fuel imports increased 50 percent to 2.65 million barrels a day last week, the highest level since December 2011.

Refinery Utilization

Refineries operated at 90.2 percent of capacity, up 0.9 percentage point from the prior week. Units are often reopened in the late 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.

“There were big gains in fuel supplies even though demand was stronger,” Walker said. “The combination of higher refinery runs and a huge gain in imports explain the gain.”

Implied volatility for at-the-money WTI options expiring in August was 20.7 percent, down from 21.1 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 548,949 contracts as of 2:56 p.m. It totaled 791,066 contracts yesterday, 27 percent higher than the three-month average. Open interest was 1.81 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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