WTI Crude Rises as Distillate Supplies a Drop Fourth Week

West Texas Intermediate crude climbed after a U.S. government report showed that stockpiles of distillate fuel dropped for a fourth week because of cold weather in the world’s biggest oil-consuming country.

Futures rose a second day. Supplies of distillate, a category that includes heating oil and diesel, fell 2.36 million barrels to 113.8 million last week, according to the Energy Information Administration. A 2.5 million-barrel decrease was forecast in a Bloomberg survey. WTI’s discount to Brent slipped to less than $8 a barrel as crude supplies declined at Cushing, Oklahoma, the delivery point for the U.S. crude.

“Distillate supplies have fallen a great deal because of the cold weather,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “There’s been a big focus on the WTI-Brent spread, which has come in a great deal.”

WTI for March delivery increased 19 cents to settle at $97.38 a barrel on the New York Mercantile Exchange. The volume of all futures traded was near the 100-day average at 3:40 p.m.

Brent for March settlement advanced 47 cents, or 0.4 percent, to end the session at $106.25 a barrel on the London-based ICE Futures Europe exchange. Prices settled at $105.78 yesterday, the lowest close since Nov. 8. Volume was near the 100-day average.

The European benchmark crude’s premium to WTI narrowed to as little as $7.91 a barrel in intraday trading, slipping below $8 for the first time since Oct. 10. The spread was at $8.87 at today’s close.

Fuel Consumption

Distillate demand averaged over the last four weeks rose 6.1 percent to 3.99 million barrels a day, the highest level since November, according to the EIA. Total fuel consumption over the same period rose 1.2 percent to an average 19.2 million barrels a day.

Ultra low sulfur diesel for March delivery climbed 1.39 cents, or 0.5 percent, to close at $2.9968 a gallon on the Nymex. Volume was 16 percent above the 100-day average.

Crude inventories rose 440,000 barrels to 358.1 million, according to the EIA, the Energy Department’s statistical arm. The report was projected to show a 2.55 million-barrel gain, according to the median estimate of 10 analysts surveyed by Bloomberg. Stockpiles have increased 7.85 million barrels in the last three weeks.

“The reaction is muted because the report was pretty close to what the market anticipated,” said Tim Evans, an energy analyst at Citi Futures in New York. “Crude stocks were expected to rise nationwide, which is what happened.”

Cushing Stockpiles

Crude supplies at Cushing dropped 1.55 million barrels to 40.3 million, the biggest decline since August, the report showed. Stockpiles at the hub rose to a record 51.9 million barrels in January 2013 because of increasing U.S. crude output and a lack of outlets to refineries along the Gulf of Mexico.

The southern leg of TransCanada Corp. (TRP)’s Keystone XL pipeline started deliveries last month to the Texas Gulf Coast from Cushing. The Gulf Coast is home to 46 percent of U.S. refining capacity.

“A draw had been expected in Cushing since the southern leg of the Keystone XL pipeline opened on Jan. 22, and that’s what we got,” Evans said. “This is what’s bringing in the WTI-Brent spread.”

U.S. crude production was unchanged at 8.04 million barrels a day, the EIA said. It rose to 8.16 million in the week ended Jan. 10, the highest level since 1988, as output surged on a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies trapped in shale formations in the central parts of the nation.

Tumbling Imports

Crude imports tumbled 14 percent to 6.89 million barrels a day last week, the biggest decline since September 2012, EIA data showed. Arrivals to Gulf Coast states, known as PADD 3, dropped 18 percent to 3.24 million barrels a day.

“There was a big drop in imports, which the market has shrugged off,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s probably a weather-related one-off. We’ll probably see a big rebound next week.”

Gasoline stockpiles increased by 505,000 barrels to 235 million in the week ended Jan. 31. A 1.15 million-barrel gain was forecast.

Refineries operated at 86.1 percent of capacity, down 2.1 percentage points from the prior week, the report showed. It was the lowest operating rate since the week ended Oct. 18.

Implied volatility for at-the-money WTI options expiring in March was 20 percent, down from 21.3 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 471,950 contracts at 3:42 p.m. It totaled 463,880 contracts yesterday, 13 percent above than the three-month average. Open interest was 1.56 million contracts, the lowest level since Jan. 29, 2013.

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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