West Texas Intermediate crude climbed as a government report showed that inventories in Cushing, Oklahoma, the delivery point for the contract, dropped to the lowest level in a year and a half.
Futures rose 1.1 percent after the Energy Information Administration said Cushing stockpiles fell 1.83 million barrels to 34.8 million last week, the fewest since February 2012. Nationwide supplies slipped 1.84 million barrels to 360.2 million. Prices also gained as President Barack Obama searched for diplomatic backing for a U.S. military strike on Syria while at the Group of 20 summit in St. Petersburg, Russia.
“Inventory levels continue to come down, which is supportive of the market,” said Adam Wise, who helps manage a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston. “The market’s really holding its breath waiting for the full impact of the Syria situation to play itself out.”
WTI crude for October delivery increased $1.14 to settle at $108.37 a barrel on the New York Mercantile Exchange. Prices are up 18 percent this year. The volume of all futures traded was 38 percent below the 100-day average at 4:25 p.m.
Brent oil for October settlement climbed 35 cents, or 0.3 percent, to end the session at $115.26 a barrel on the London-based ICE Futures Europe exchange. Trading was 3 percent lower than the 100-day average. The European benchmark crude’s premium to WTI narrowed to $6.89 from $7.68 yesterday, the widest level since June 14.
“WTI should be rising more than Brent because of the Cushing number,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York. “Cushing stockpiles drew for a ninth week.”
Inventories at Cushing have decreased as improved pipeline networks and shipments by rail eased a North American supply glut created by rising oil production from shale formations. The new pipeline capacity caused WTI to shift into backwardation in June and July, a market structure in which oil for immediate delivery is more expensive than crude for future shipment.
Refinery utilization also climbed for a third week.
“When you look at Cushing, we’re seeing the results of new pipelines coming online and diverting oil, along with increasing refinery runs creating more demand,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “All of that is happening in a market that moved from contango to backwardation in July, resulting in a lack of any economic incentive to store barrels.”
Overall U.S. stockpiles were forecast to drop 2 million barrels, according to the median response of 12 analysts in a Bloomberg survey.
U.S. crude production rose 0.2 percent to 7.62 million barrels a day, according to the EIA, the Energy Department’s statistical unit. Output has surged to the highest level since October 1989 as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in the central part of the country.
Refineries operated at 91.7 percent of capacity, up 0.5 percentage point from the prior week. Utilization rates usually peak during the summer months when U.S. gasoline demand rises and decline as the season comes to an end.
“It’s important to keep in mind that this is really the last report of the summer driving season,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.
Gasoline stockpiles dropped 1.83 million barrels to 216 million. Inventories of distillate fuel, a category that includes heating oil and diesel, increased 549,000 barrels to 129.6 million.
Total fuel consumption dropped 1 percent to 19.2 million barrels a day on average over the past four weeks, the lowest level since June.
“Demand wasn’t good at all but the inventory numbers were bullish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The market is taking its cue from the inventory numbers today.”
Obama began rounds of meetings with other leaders of the G-20, trying to persuade allies to give the U.S. a measure of political cover even if they withhold military support.
The Senate Foreign Relations Committee voted yesterday to authorize Obama to conduct a restricted operation following the alleged use of chemical weapons by President Bashar al-Assad, clearing the way for consideration by the full Senate. Obama is seeking approval from Congress before taking action against Syria. Lawmakers are scheduled to reconvene on Sept. 9 after a five-week break.
The resolution supports the use of force in a “limited and specified manner against legitimate military targets” during a 60-day period following enactment, with a possible 30-day extension at the president’s request. The full Senate next week will consider the resolution, which doesn’t authorize the use of U.S. ground troops in combat roles.
The Middle East accounted for about 35 percent of global oil production in the first quarter of this year, according to the International Energy Agency. Syria borders Iraq, the largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia.
Implied volatility for at-the-money WTI options expiring in October was 25 percent, down from 27.8 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 350,539 contracts as of 4:26 p.m. It totaled 472,131 contracts yesterday, 26 percent below the three-month average. Open interest was 1.86 million contracts.