West Texas Intermediate crude gained after a government report showed U.S. inventories decreased more than expected as refineries boosted fuel production.
Prices rose 0.5 percent after the Energy Information Administration said stockpiles dropped 6.9 million barrels to 367 million in the seven days ended July 12. Analysts surveyed by Bloomberg forecast a decline of 2 million. Stockpiles of gasoline and diesel increased as refineries operated at the highest rate in a year.
“The report is supportive for crude prices,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “You’ll see more crude being refined into product. The data may dampen gasoline prices.”
WTI for August delivery climbed 48 cents to settle at $106.48 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 11 percent above the 100-day average at 2:52 p.m. The futures have rallied 10 percent in July, headed for the biggest monthly gain since October 2011.
Brent for September settlement advanced 47 cents, or 0.4 percent, to $108.61 on the London-based ICE Futures Europe exchange. Volume was 26 percent below the 100-day average. Brent’s premium over WTI narrowed to $2.26.
Crude stockpiles decreased for a third week to the lowest level since Jan. 18, according to the EIA, the Energy Department’s statistical arm. Stockpiles surged to 397.6 million on May 24, the most since 1931.
“There was such a high level of crude oil inventories that we can actually draw down inventories to much lower levels without having an impact on day-to-day refining operations,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Nobody is going to be cutting crude runs because they draw inventories too much.”
The refinery operation rate increased to 92.8 percent, up 0.4 percentage point from the prior week and the highest level since July 20. Supplies at Cushing, Oklahoma, the delivery point for WTI futures, dropped 882,000 barrels to 46.1 million, the lowest level since Nov. 30.
Gasoline consumption decreased 570,000 barrels a day, or 6.1 percent, to 8.73 million, the biggest decline since Jan. 7, 2005. Supplies rose 3.06 million barrels to 224.1 million. They were expected to fall 1.5 million.
Distillate fuels, which include diesel and heating oil, rose 3.87 million barrels to 127.7 million. Analysts expected a gain of 1.5 million. Demand slipped 0.7 percent to 3.82 million barrels a day, the least since May 31.
“Demand is still weak,” Evans said. “Product inventories rose firmly.”
Gasoline futures dropped 2.42 cents, or 0.8 percent, to $3.1101 a gallon on the Nymex. Ultra-low-sulfur diesel rose 2.43 cents, or 0.8 percent, to $3.0712.
Gains in domestic crude production and imports helped boost inventories. Output climbed for a fourth week to 7.49 million barrels a day on July 12, the most since December 1990. Crude imports climbed 180,000 barrels a day to 7.71 million.
“We are going to continue to see increases in production but the rate of increase in general is likely to slow,” Schenker said.
A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies in shale formations in states including North Dakota, Oklahoma and Texas. Rising oil production helped the U.S. meet 89 percent of its own energy needs in March, the highest monthly rate since April 1986, according to the EIA.
Oil fluctuated most of the day after Federal Reserve Chairman Ben S. Bernanke told the House Financial Services Committee that the central bank’s asset purchases “are by no means on a preset course.” He said they could be reduced more quickly or expanded as economic conditions warrant.
“The big fear in the market is that the Fed pulls back on its stimulus,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “If there is any kind of indication that the Fed will begin to cut back on their stimulus, that will create quite a headwind in the market.”
The Dollar Index, which measures the greenback against six other major currencies, rose as much as 0.5 percent. A stronger dollar reduces the appeal of investing in oil.
Implied volatility for at-the-money WTI options expiring in September was 20.7 percent, compared with 21.7 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 594,126 contracts as of 2:57 p.m. It totaled 634,093 contracts yesterday, 3.4 percent below the three-month average. Open interest was 1.88 million contracts.
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