West Texas Intermediate crude surged above $100 a barrel after the year’s largest decline in U.S. stockpiles and amid concern that unrest in Egypt will disrupt Middle Eastern shipments.
Futures reached a 14-month high as the Energy Information Administration said supplies fell 10.3 million barrels to 383.8 million. Analysts surveyed by Bloomberg expected a drop of 2.25 million. Egypt’s military told Mohamed Mursi at 7 p.m. local time that he’s no longer president, the state-run Ahram Gate newspaper said, boosting anxiety that flows through the Suez Canal or Suez-Med pipeline will be cut.
“We have two main factors pushing us higher today,” said Adam Wise, who helps manage a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston. “We’re looking at a much larger than expected supply decline here, while the turmoil in Egypt raises concern about supplies from the Middle East.”
WTI crude for August delivery gained $1.64, or 1.6 percent, to $101.24 on the New York Mercantile Exchange, the highest settlement since May 3, 2012. The volume of all futures traded was 93 percent higher than the 100-day average at 2:43 p.m.
There will be no floor trading in the Nymex tomorrow because of the U.S. Independence Day holiday. Any electronic trades will be booked for July 5.
“I don’t see the possible closure of the Suez Canal having any direct impact on a crude that’s delivered in Oklahoma, but you can’t argue with the market,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “The bulls are really squeezing this thing. Nobody wants to step in front of a freight train before what’s effectively a four-day weekend.”
Brent oil for August settlement increased $1.76, or 1.7 percent, to end the session at $105.76 a barrel on the London-based ICE Futures Europe exchange.
The European benchmark traded at a $4.52 premium to WTI after falling to as little as $3.10. The spread was $4.40 yesterday, the narrowest based on closing prices since Jan. 4, 2011. It was more than $23 in February. The opening of a new unit at the BP Plc (BP/) refinery in Whiting, Indiana, and the completion of additional pipeline and rail capability is providing outlets for surging supplies in the central U.S. and increased WTI relative to other grades.
“The era of the weak midcontinent crude is rapidly coming to an end,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Massachusetts. “Whiting is a big deal and there’s increasing pipeline and refinery capacity, which will reduce inventories.”
U.S. crude production rose 6,000 barrels a day to 7.27 million last week, according to the EIA, the Energy Department’s statistical unit. 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.
Gasoline stockpiles declined 1.72 million barrels to 223.7 million. Supplies were projected to advance 700,000 barrels, according to the median of 11 responses in the Bloomberg survey. Inventories of distillate fuel, a category that includes heating oil and diesel, dropped 2.42 million barrels to 120.8 million.
“This report was bullish across the board,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “There was a draw in crude, which was expected, and both product categories, which wasn’t. The magnitude of the crude decline was unexpected.”
Gasoline demand rose 4.5 percent to 9.29 million barrels a day last week, the highest level since August, according to the EIA. Total petroleum consumption surged 7.5 percent to 20.4 million, the most since December 2010.
Refineries operated at 92.2 percent of capacity, up 2 percentage points from the prior week and the highest level this year. Utilization rates reached their annual peak in June or July during eight of the past 10 years.
BP is ramping up rates on its new 250,000-barrel-a-day crude unit at Whiting, the largest refinery in the Midwest. Refinery inputs in PADD 2, which includes the Midwest, climbed 3.2 percent to 3.42 million barrels a day, the most in more than six months.
“Fears of what is happening on the streets of Egypt are occurring in conjunction with the BP Whiting crude unit startup,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “WTI inventories are now going to be rapidly drawn down. WTI is reconnected to the world oil market and we’ve seen its deep discount to Brent disappear.”
Mursi made a call for an interim coalition government just before the expiration of a military deadline that may drive him from office. The Islamist leader’s comments signaled rejection of protesters’ calls to step down after he vowed in a late-night television address yesterday to defend “legitimacy” with his life.
The armed forces pledged on July 1 to impose a plan if Mursi didn’t end the crisis within 48 hours. Clashes left at least 18 dead and 619 wounded over the past 24 hours, said Ahmed El-Ansari, deputy head of the national ambulance service.
Egypt controls the Suez Canal and the Suez-Mediterranean Pipeline through which a combined 2.24 million barrels a day of oil was shipped from the Red Sea to Europe and North America in 2011, according to the EIA. The Middle East accounted for 35 percent of global oil output in the first quarter of this year, according to the International Energy Agency’s monthly oil market report published on June 12.
Implied volatility for at-the-money WTI options expiring in August was 24 percent, up from 20.5 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 988,610 contracts as of 2:49 p.m. It totaled 1.05 million contracts yesterday, the highest since Feb. 7, 2012. Open interest was 1.77 million contracts.
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