Gasoline Jumps to 16-Week High on Supply Drop, Fed Notes

Gasoline jumped to a 16-week high after an Energy Department report showed stockpiles slipped to a 10-week low and as minutes from a Federal Reserve meeting indicated policy makers may expand fiscal easing soon.

Futures advanced as gasoline supplies fell 962,000 barrels last week to 202.7 million. Many Fed members “judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” according to the record of the Fed’s July 31-Aug. 1 gathering released today in Washington.

“The below-normal inventory levels have been here for a while and that’s bullish,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “The market also rallied on the Fed notes. You read the notes and you think there’s a greater chance there will be some easing.”

September-delivery gasoline rose 3.9 cents, or 1.3 percent, to 3.1042 on the New York Mercantile Exchange, the highest settlement since April 30. The more actively traded October contract gained 3.14 cents to $2.9382.

The Federal Open Market Committee, the Fed’s policy-making arm, next meets on Sept. 12-13.

Inventories of gasoline have declined 3.5 percent in the past four weeks to the lowest level since June 15.

“Gasoline inventories are down 7.3 million in four weeks of declines and the 10-year average is 6 million, so you’re drawing slightly better than normal,” said David Pursell, a managing director at Tudor Pickering Holt & Co. LLC in Houston.

New York Harbor

In the PADD 1 region, which includes New York Harbor, the delivery point of Nymex futures, stockpiles fell 321,000 barrels to 49.6 million, the lowest level since April 2011. East Coast imports of gasoline are the lowest for this time of the year since 2008.

“The report is a little bullish for gasoline because of the inventory draws,” said Sander Cohan, a global transportation fuels analyst and principal with Energy Security Analysis Inc. in Wakefield, Massachusetts. “There will be continued supply constraints because of fewer imports from Europe.”

Gasoline demand fell to 9.08 million barrels a day, the first decline in five weeks. Consumption over the past four weeks was 1.7 percent below a year earlier, narrower than the 2.8 percent difference the previous week. Wholesale demand for the motor fuel sank 2.4 percent, after jumping to a 13-month high the prior week.

“The demand numbers we knew weren’t sustainable,” Lebow said.

Demand Shrinks

Demand typically declines after the Labor Day holiday, which falls this year on Sept. 3. Emissions specifications in fuel will loosen after the summer, making the fuel cheaper to produce and expanding available supply.

Heating oil for September delivery rose 0.44 cent to $3.1287 a gallon on the exchange, the highest settlement for the front-month contract since May 2.

Supplies of distillates, including heating oil and diesel, rose 992,000 barrels to 125.2 million, the second consecutive increase. Inventories are still 20 percent below a year earlier and are the lowest for this time of the year since 2004.

“Despite this build, distillate stocks remain low by historical standards,” Gareth Lewis-Davies, an energy strategist at BNP Paribas SA in London, said in a report today. “There remains ground for concern that distillate may build insufficiently to meet U.S. domestic requirements this winter, which will offer price support.”

Regular gasoline at the pump, averaged nationwide, fell a second straight day, losing 0.1 cent to $3.716 a gallon yesterday, AAA data showed. Gasoline has climbed 39 cents since July 1, according to data from the nation’s largest motoring organization.