Oil Rises to Three-Month High

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Oil surged to the highest level of the year as a break in the U.S. shale boom signaled a potential easing of the biggest supply glut since 1930.

Crude supplies increased last week at the slowest pace since January, the Energy Information Administration said. Output from shale formations such as North Dakota’s Bakken will fall in May, the EIA said Monday.

A near 50 percent plunge in prices since the middle of last year has forced half the country’s drilling rigs offline and wiped out thousands of jobs. U.S. refineries have boosted operations, processing a record amount of crude for this time of year.

“We’re at the cusp of a major change,” Matt Sallee, who helps manage $17.7 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas, said by phone. “Production is stabilizing and set to move into decline faster than people expected.”

West Texas Intermediate for May delivery increased $3.10, or 5.8 percent, to close at $56.39 a barrel on the New York Mercantile Exchange. It’s the highest settlement since Dec. 23. Volume was 77 percent above the 100-day average at 2:50 p.m.

Brent Market

Brent for May settlement, which expired Wednesday, climbed $1.89, or 3.2 percent, to end the session at $60.32 a barrel on the London-based ICE Futures Europe exchange. It was the highest close for a front-month contract since March 5. The more-active June contract gained $3.51, or 5.9 percent, to $63.32. Volume was up 18 percent from the 100-day average. The European benchmark crude closed at a $3.93 premium to WTI.

Futures extended gains after the Federal Reserve’s Beige Book showed the economy expanded in most U.S. regions from mid-February to the end of March, with higher retail sales and rising demand for business service. Total industrial production dropped last month, a Fed report showed.

U.S. crude supplies climbed 1.29 million barrels to 483.7 million last week, the highest level in records compiled by the EIA since August 1982. Monthly data going back to 1920 show stockpiles haven’t been this high since 1930. Inventories were projected to climb 3.6 million barrels, according to the median of 10 analyst estimates in a Bloomberg survey.

‘Seasonal Leader’

“The supply gain was a lot smaller than what we’ve gotten accustomed to so the report is bearish even though inventories are at the highest level in more than 80 years,” John Kilduff, partner at Again Capital LLC, an energy hedge fund in New York, said by phone. “The big drop in gasoline is also supportive, since it’s the seasonal leader.”

Inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, climbed 1.29 million barrels to a record 61.5 million.

Crude production fell 20,000 barrels a day to 9.38 million last week, according to the EIA. That’s down from 9.42 million on March 20, the most in weekly estimates that started in January 1983. Output has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, unlocked supplies from shale formations in the central U.S.

Shale Outlook

Output from shale formations such as North Dakota’s Bakken will fall 57,000 barrels a day in May, the EIA said Monday. Deutsche Bank AG, Goldman Sachs Group Inc. and IHS Inc. have projected that U.S. oil production growth will end, at least temporarily, with futures near a six-year low.

Refineries operated at 92.3 percent of their capacity, up 2.2 percentage points from the prior week, the report showed. U.S. refiners schedule maintenance for late winter as they transition from winter fuels to maximizing gasoline output.

U.S. refineries used 16.5 million barrels a day of crude and other liquids last week, the highest seasonal level in weekly data going back to 1989.

“Refineries are coming out of seasonal maintenance,” Sallee said. “We’re seeing a nice trend of growing refinery utilization rates that will help move the domestic crude market into balance.”

Fuel Stockpiles

Supplies of gasoline fell 2.07 million barrels to 227.9 million, the lowest level since December. Inventories of distillate fuel, a category including diesel and heating oil, rose 2.02 million barrels to 128.9 million.

Gasoline futures for May delivery rose 10 cents, or 5.5 percent, to $1.936 a gallon, the highest settlement since March 3. May ultra low sulfur diesel climbed 8.71 cents, or 4.8 percent, to $1.8888, the highest close since March 4.

The Organization of Petroleum Exporting Countries’ crude production rose the most in almost four years in March, the International Energy Agency said Wednesday in a report. Output grew by 890,000 barrels a day to 31.02 million a day, the biggest monthly gain since June 2011, the Paris-based IEA said. The group’s 12 members, which pump about 40 percent of the world’s oil, are scheduled to meet June 5 in Vienna.

“OPEC’s core Gulf producers -- led by Saudi Arabia -- appear to be sticking with their defense of market share,” the IEA said Wednesday in its monthly market report.

The IEA lowered its prediction for North American oil production in the second half of the year by 160,000 barrels a day. That’s partially due to the drop in U.S. rigs.

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