West Texas Intermediate oil advanced to a one-week high after a government report showed that U.S. crude inventories tumbled as refineries increased production.
Futures rose 0.5 percent. The Energy Information Administration said supplies fell 6.27 million barrels to 391.3 million last week. An 800,000-barrel drop was projected in a Bloomberg survey of analysts. Refineries operated at 88.4 percent of capacity, up 2 percentage points from the prior week. Crude imports slipped 7 percent to 7.27 million barrels a day.
“The crude number was huge and impossible to ignore,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The rise in refinery utilization rates and the fall in imports explain most of the big drop, which is tempering the rise in prices.”
WTI crude for July delivery increased 43 cents to $93.74 a barrel on the New York Mercantile Exchange, the highest settlement since May 28. The volume of all futures traded was 0.3 percent above the 100-day average at 3:14 p.m.
Brent oil for July settlement slipped 20 cents to end the session at $103.04 a barrel on the London-based ICE Futures Europe exchange. Volume for all contracts was 12 percent below the 100-day average. The European benchmark grade traded at a $9.30 premium to WTI. The spread was $9.93 yesterday, the widest based on closing prices since April.
It was the biggest decline in crude stockpiles since Dec. 28, EIA figures show. Supplies surged to 397.6 million barrels in the week ended May 24, the most since 1931.
“A one-week decline doesn’t change the fundamental picture, but the bulls are definitely in charge of the market for the moment,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
Crude production increased 0.1 percent to 7.3 million barrels a day last week, according to the EIA, the Energy Department’s statistical unit. Production exceeded imports by 32,000 barrels a day, the first time output surpassed output since 1997.
U.S. crude grades have traded at a discount to Brent as rising output bolstered supplies. Production reached 7.37 million barrels a day in the week ended May 3, the most since February 1992. Output has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, unlocks supplies trapped in shale formations including the Bakken in North Dakota and the Eagle Ford in Texas.
“We should continue to see high refinery runs through the summer because U.S. refiners have great advantages,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “They have cheap natural gas and access to Bakken and other low-priced grades. Crude supplies should continue to draw down through the summer months as a result.”
Gasoline inventories declined 366,000 barrels to 218.8 million. Supplies were forecast to rise 1 million barrels, according to the median estimate of 11 analysts in the Bloomberg survey. Output of the fuel climbed 332,000 barrels a day to 9.34 million, the highest level since December, the report showed.
July gasoline futures rose 0.48 cent to $2.823 a gallon on the Nymex, the highest settlement since May 28.
The peak-demand summer driving season when Americans usually take vacations began with the May 27 Memorial Day holiday and ends in early September with Labor Day. Consumption slipped 1.5 percent to 8.82 million barrels a day last week.
“Gasoline demand isn’t that great last week, especially when you consider that the report covered Memorial Day,” Lynch said. “This should keep prices from rising too far.”
Stockpiles of distillate fuel, a category that includes heating oil and diesel, rose 2.61 million barrels to 123.3 million, the highest level since February.
Crude retreated from the day’s highs after equities declined. The Standard & Poor’s 500 Index and the Dow Jones Industrial Average both declined 1.3 percent.
The U.S. will extend waivers from sanctions for nine nations that import Iranian oil, an American official said. Sanctions exemptions for China, India, Malaysia, South Korea, Singapore, South Africa, Sri Lanka, Turkey and Taiwan will continue, according to the official, who spoke on condition of anonymity because the decision hasn’t been made public.
A December 2011 law cuts off access to the U.S. banking system for any foreign financial institutions that handle oil trading with Iran, unless their home countries have earned a waiver by significantly reducing imports. The measures are intended to pressure the Persian Gulf nation to abandon aspects of its nuclear program that the U.S. and Israel say are aimed at developing atomic weapons.
WTI’s rebound may stall along its middle Bollinger Band, at about $94.40 a barrel today, according to data compiled by Bloomberg. Futures yesterday halted an intraday advance near this indicator for a fourth day, signaling where sell orders may be clustered.
Implied volatility for at-the-money WTI options expiring in July was 22.8 percent, compared with 23.7 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 512,155 contracts as of 3:11 p.m. It totaled 708,400 contracts yesterday, 20 percent above the three-month average. Open interest was 1.74 million contracts.