Gasoline Advances on Brent Crude Strength, U.S. Demand Increase

Gasoline futures surged to a five-week high as Brent crude gained when Norway’s largest oil producer said a strike forced a production halt and as U.S. motor fuel demand climbed last week before the July 4 holiday.

Futures advanced as a stronger Brent may increase the cost of European fuel imports. The Energy Department reported that gasoline demand, measured by deliveries to wholesalers, rose 1.8 percent to 9 million barrels a day. Total fuel demand jumped 2.8 percent to the highest since Nov. 4.

“Brent is being supported by the Norwegian strike and its potential to shut in all the output out of that country,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “And it’s anticipated there was a huge amount of driving over the July 4 holiday and that would increase demand.”

August-delivery gasoline advanced 4.19 cents, to $2.7648 a gallon on the New York Mercantile Exchange, the highest settlement since May 31. Gasoline has gained 5.4 percent in two days.

Gasoline touched $2.795 after department data showed that East Coast stockpiles fell to a seven-month low and on a report that a compressor failed at a Delaware refinery serving the New York Harbor market. The premium of August over September futures jumped to 10.96 cents a gallon from 9.26 cents July 3.

“That could help support prices,” said David Pursell, a managing director at Tudor Pickering Holt & Co. LLC in Houston.

Total U.S. gasoline supplies rose 151,000 barrels to 205 million as refiners increased output of the motor fuel 1.2 percent to 9.39 million barrels a day.

Crack Spread

Gasoline’s premium to WTI, or crack spread, based on August contracts, widened $2.20 to $28.90 a barrel on the Nymex, the widest since June 15.

“Tightness on the East Coast last week points to a strength in the gasoline market,” said Sander Cohan, a global transportation fuels analyst and principal with Energy Security Analysis Inc. in Wakefield, Massachusetts.

Norwegian oil producers led by Statoil ASA plan to shut all offshore operations as Europe’s second-largest crude exporter seeks to resolve an 11-day strike over pensions. As much as 2 million barrels a day of oil equivalent may be lost if a planned lockout goes ahead on July 9, Statoil said.

Brent oil for August settlement rose 93 cents to $100.70 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to the U.S. benchmark, West Texas Intermediate, increased to $13.48 from $13.02 on July 3.

Brent-WTI Spread

“The Brent-WTI spread widening out is providing support for products,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Heating oil for August delivery rose 0.99 cent, or 0.4 percent, to $2.7684 a gallon on the exchange, the highest settlement since May 29.

Distillate inventories fell 1.05 million barrels to 117.8 million. Demand rose 0.6 percent to an average 3.85 million barrels a day. Crude oil stockpiles fell 4.27 million barrels to 382.9 million in the largest decline this year.

“I don’t like gasoline not drawing and gasoline demand is still pretty weak, but this report is bullish just because of the big crude draw and distillate draw,” Pursell said.

Regular gasoline at the pump, averaged nationwide, increased 0.2 cent to $3.338 a gallon yesterday, according to AAA. Prices are down 15 percent from a year-to-date high of $3.936 on April 4 and 6.3 percent below a year ago.

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