Gasoline slid as the Energy Department reported that stockpiles of the motor fuel jumped to a seven-week high and on concern that European leaders can’t contain the region’s debt crisis.
Prices sank as gasoline supplies rose 2.08 million barrels to 204.8 million, larger than the 1-million-barrel gain projected in a survey by Bloomberg. European Union leaders are preparing for a two-day summit beginning tomorrow in Brussels.
“We did get a build in gasoline stocks,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market is waiting for the EU meeting.”
July-delivery gasoline fell 2.47 cents, or 0.9 percent, to settle at $2.6204 a gallon on the New York Mercantile Exchange. Prices have fallen 7.2 percent this month and are down 23 percent in the quarter. The contract is for reformulated gasoline, or RBOB.
The increase in gasoline stockpiles came as refinery utilization rose 0.7 percentage point to 92.6 percent, the highest level since July 2007. Gasoline output jumped 2.9 percent to 9.28 million barrels a day.
Gasoline demand, measured by deliveries to wholesalers, rose 1.8 percent to 8.85 million barrels a day while demand over the past four weeks was 4.8 percent below a year earlier.
“RBOB had been leading the market higher due to tighter supplies on the East Coast and West Coast, but today the increase in gasoline production is almost double the increase in gasoline demand,” said Hamza Khan, an analyst at the Schork Group Inc., a consulting company in Villanova, Pennsylvania.
Gasoline’s premium to WTI, or crack spread, based on August contracts, narrowed $1.86 to $24.74 a barrel.
“This is likely the beginning of the pullback in the crack spread,” Khan said. “You’re going to be seeing demand fairly weak for the summer season and increased production due to a lot of barrels at Cushing making their way down to the Gulf Coast.”
The Seaway pipeline was reversed last month to bring crude oil from Cushing, Oklahoma, the largest U.S. oil storage hub and the delivery point for the Nymex futures contract, to refineries on the Gulf Coast. Cushing stockpiles, which reached a record 47.8 million barrels in the week ended June 1, fell two of the past three weeks.
German Chancellor Angela Merkel said she opposed joint euro-area bonds as a means of lowering Spain’s borrowing costs, saying they are the “wrong way” to achieve the greater European integration needed to stem the debt crisis.
“The outcome of the EU meeting is the biggest thing weighing on the market and the market seems to have low expectations given German opposition to sharing the debt burden,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.
Inventories of diesel and heating oil fell 2.28 million barrels to 118.9 million. Demand rose 9.2 percent to an average 3.83 million barrels a day, the highest level in four weeks. Consumption over the past four weeks was 0.1 percent above a year earlier.
“These numbers are good and terrible,” said David Pursell, a managing director at Tudor Pickering Holt & Co. LLC in Houston. “They’re good in that you have a nice draw in distillate. The terrible part is the gasoline build and crude inventories did not draw.”
The drop in distillate supplies comes as Motiva Enterprises LLC’s new 325,000-barrel-a-day crude unit in Port Arthur, Texas, will be down for several months to repair corrosion damage suffered earlier this month.
“Now you have that Motiva outage, and you won’t have the benefit of its extra diesel output come September and November,” said Andrew Reed, a principal and oil market analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. “The diesel draw stands out as a bullish development.”
Heating oil was up before the inventory report as U.S. durable goods orders rose 1.1 percent in May, the Commerce Department reported. The index of pending home resales climbed 5.9 percent to 101.1, matching a two-year high reached in March, figures from the National Association of Realtors showed.
“People are getting a little more optimistic again about the U.S. economic recovery,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.
Heating oil for July delivery rose 1.72 cents, or 0.7 percent, to settle at $2.5937, the highest level in a week and fourth consecutive gain. Prices have lost 4.2 percent this month and are down 18 percent since March 30.
Regular gasoline at the pump, averaged nationwide, fell 1.4 cents to $3.383 a gallon yesterday, according to AAA. It was the lowest level since Jan. 25.