Oil Gains as Supplies Decline More Than Expected

Oil traded near the highest close since May after U.S. stockpiles dropped to the lowest in four months and China signaled it may take more steps to boost growth in the world’s second-biggest economy.

Futures extended gains, rising as much as 0.6 percent, after climbing 1 percent yesterday. Crude supplies shrank 3.7 million barrels and total fuel use reached the highest level in nine months last week, the Department of Energy said in a report. Slowing inflation gives China more room to adjust monetary policy, Chinese Premier Wen Jiabao said, according to state media. The number of Americans filing applications for unemployment benefits was little changed last week, Labor Department figures showed today in Washington.

“There was a huge jump yesterday after the U.S. oil inventories were published, with the price not just driven by falling inventories but demand increasing markedly,” Thina Saltvedt, analyst at Nordea Bank AB in Oslo, said by phone today. “Any movement in the oil price today must be on the political side, especially anything relating to Iran.”

Oil for September delivery gained 42 cents to $94.75 a barrel in electronic trading on the New York Mercantile Exchange at 1:47 p.m. in London. It earlier rose as much as 52 cents, or 0.6 percent. Yesterday’s close at $94.33 was the highest since May 14. Prices are down 4.1 percent this year.

Brent crude for September settlement, which expires today, rose 18 cents to $116.43 after climbing 2 percent yesterday on the London-based ICE Futures Europe exchange. The more actively traded October contract was at $114.57. Brent’s premium to WTI was $21.68 a barrel after closing yesterday at $21.92, the highest since October.

Inventory Drawdown

Crude inventories dropped to 366.2 million barrels, a four-month low. Analysts surveyed by Bloomberg had forecast a decline of 1.5 million. Petroleum consumption jumped 5.7 percent to 20 million barrels a day, the most since Nov. 4, led by a 5.3 percent gain in gasoline demand.

Gasoline stockpiles fell 2.37 million barrels to 203.7 million. Distillate supplies, which include heating oil and diesel, rose 677,000 to 124.2 million. The refinery utilization rate was unchanged at 92.6 percent.

“One of the drivers would have been the continued drawdown in U.S. inventories,” said David Lennox, a resource analyst at Fat Prophets in Sydney. Data from China showing easing inflation “does give them the opportunity to stimulate their internal demand and that would have potential to push up oil prices.”

Strike Iran

Israel would be willing to strike Iran, even if doing so only delayed its ability to produce nuclear weapons for a few years, Israeli Ambassador to the U.S. Michael Oren said yesterday. The country’s leaders have stressed this month that time is running out for a diplomatic solution to the nuclear program that it regards as an existential threat.

The escalating conflict in Syria should increase the oil risk premium for the country, according to Petromatrix GmbH.

Persian Gulf states urged their citizens to leave Lebanon after kidnapping threats were made against them following the abduction of a Lebanese man in Syria, raising concern that the Syrian crisis was spilling across borders.

“We were focusing on the north of Syria with our concern that the next supply disruption will be in the Bay of Iskenderun rather than in the Strait of Hormuz,” Olivier Jakob, managing director at Switzerland-based Petromatrix, said today in an e-mailed report. “Yesterday, oil markets priced a higher risk premium for Syria but for developments to the South (Lebanon) rather than to the North (Turkey).”

Middle East

Concern that Middle East tension would disrupt supplies from a region responsible for about one third of the world’s crude production helped oil advance 7.1 percent in August.

Tropical Storm Gordon formed in the North Atlantic to become the seventh named storm of the year. The system was located about 585 miles (940 kilometers) east of Bermuda, where it’s currently no threat to land, according to the U.S. National Hurricane Center in Miami.

The system has top winds of 40 miles per hour and is moving north-northeast at 14 mph, the agency said in an advisory shortly before 5 a.m. New York time yesterday.

Seven named storms have formed this year including Hurricane Ernesto, which struck Mexico last week, killing at least two people and causing widespread flooding. The Atlantic season runs from June 1 to Nov. 30 and U.S. forecasters expect 12 to 17 storms to form in the basin.

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