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Gasoline Gains as Looming Syria Strike Sends Crude Above $112

Aug. 28 (Bloomberg) -- Gasoline jumped to a five-week high as crude rallied on concern that any U.S. military strikes against Syria will spark a widespread Middle East conflict and disrupt oil supplies.

Futures rose 2 percent. West Texas Intermediate crude surged to the highest level since May 2011. The U.S. and the U.K. today said they are prepared to take military action against Syria without authorization from the United Nations Security Council. Syrian Foreign Minister Walid al-Muallem said yesterday “we have the means to defend ourselves, and we will surprise people with them.”

“We’re off the highs, but until we have a clear feeling on how the aftermath of this potential strike in Syria will go, you can’t afford to be short,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “All the major oil producers are on opposite sides of the conflict.”

Gasoline for September delivery rose 6.04 cents to $3.0945 a gallon on the New York Mercantile Exchange, the highest settlement since July 19. Trading volume was 0.6 percent below the 100-day average at 4:24 p.m.

Prices are up 1.7 percent this month. The September contract’s premium over October futures widened by 1.15 cents to 13.29 cents a gallon. The October contract represents winter-grade gasoline, which is cheaper to blend.

Summer-Grade

“Maybe, there is not as much of the summer-grade gasoline around as we thought,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “There may also be some speculative short-covering before the expiration on Friday.

After Russia objected to a UN resolution offered by the U.K. authorizing action to protect civilians, a State Department spokeswoman said the U.S. will take ‘‘appropriate’’ action without the international body’s approval. U.S. and British officials say there’s little doubt that Syrian President Bashar al-Assad’s forces are responsible for the chemical attacks near Damascus that opposition groups say killed more than 1,300 people.

Israel’s military bolstered its defenses near the northern border and Prime Minister Benjamin Netanyahu warned against any retaliatory attack on his country, amid signs the U.S. is preparing to strike Syria over its alleged use of chemical weapons.

‘‘How much higher can we go?” said Jason Schenker, president of Prestige Economics LLC in Austin. “When it comes to geopolitical risk, prices have the potential to go beyond reasonable levels.”

Crude Rally

WTI for October delivery increased $1.09 to $110.10 a barrel on the Nymex, the highest settlement since May 3, 2011. October Brent crude on the London ICE Futures Exchange advanced $2.25 to $116.61, the highest settlement in six months.

The motor fuel’s crack spread versus West Texas Intermediate crude rose 96 cents to $14.29 a barrel. The fuel’s premium over Brent fell 20 cents to $7.78, the lowest level since January.

The U.S. Energy Information Administration reported that gasoline inventories fell 587,000 barrels to 217.8 million last week, the lowest level since May 3. Gasoline supplies on the East Coast, which includes New York Harbor, the delivery point for gasoline and diesel contracts, fell 246,000 barrels to 58.3 million, the lowest level since March 29.

Lower Demand

Implied demand fell to a five-week low as the U.S. approaches the Sept. 2 Labor Day holiday, traditionally the end of the summer driving season. Demand over the past four weeks was 1 percent above the previous year, smaller than the 2 percent difference the prior week.

Pump prices, averaged nationwide, rose 0.4 cent to $3.546 a gallon, Heathrow, Florida-based AAA said today on its website. Prices are 21 cents below a year earlier.

Distillate inventories, including diesel and heating oil, fell for the first time in four weeks, declining 316,000 barrels to 129 million.

Ultra-low-sulfur diesel for September delivery rose 4.74 cents, or 1.5 percent, to $3.2083 a gallon, a six-month high, on trading volume that was 13 percent above the 100-day average. Prices are up 5.4 percent this month.

ULSD’s crack spread versus WTI widened 83 cents to $24.77 a barrel. The premium over Brent fell 33 cents to $18.26.

To contact the reporter on this story: Barbara Powell in Dallas at bpowell4@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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