Oil Rises After U.S. Crude Supply Drops Amid Refining Boost

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Oil climbed after U.S. crude stockpiles dropped as refineries bolstered operating rates.

Crude inventories declined 2.67 million barrels last week, according to the Energy Information Administration. Refinery operating rates rose for the third time in four weeks. Gasoline supplies unexpectedly fell ahead of the Memorial Day holiday, which heralds the start of the U.S. summer driving season.

Oil’s recovery from a six-year low in March has faltered near $60 a barrel amid speculation that rising prices will encourage production. The Organization of Petroleum Exporting Countries, led by Saudi Arabia, has resisted calls to reduce output, exacerbating a global oversupply.

“These were a supportive set of numbers,” Mike Wittner, Societe Generale SA’s New York-based head of oil market research, said by phone. “Supplies were down in all the major categories and demand was stronger.”

West Texas Intermediate for July delivery climbed 99 cents, or 1.7 percent, to settle at $58.98 a barrel on the New York Mercantile Exchange. The June contract slipped 3.7 percent to expire at $57.26 Tuesday. The volume of all futures traded was 41 percent below the 100-day average at 2:45 p.m. Prices are up 11 percent this year.

Gasoline futures for June delivery increased 4.61 cents, or 2.3 percent, to close at $2.0411 a gallon in New York. June ultra low sulfur diesel advanced 1.68 cents, or 0.9 percent, to settle at $1.946.

Fed Minutes

Futures slipped from their highs briefly as the dollar climbed after the minutes from the Federal Reserve’s last meeting showed officials didn’t expect to raise rates at the June gathering. A stronger dollar reduces the appeal of commodities priced in the U.S. currency.

“You got a little knee-jerk reaction after the release of the Fed minutes because of the dollar,” Stephen Schork, president of Schork Group Inc., a consulting firm in Villanova, Pennsylvania, said by phone. “We’ve not seen much of a move given how bullish the EIA data was, which is a bearish sign.”

Brent for July settlement rose $1.01, or 1.6 percent, to end the session at $65.03 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude closed at a $6.05 premium to WTI.

U.S. crude supplies slid to 482.2 million barrels in the week ended May 15, EIA data show. A 1.75 million-barrel decline was projected in a Bloomberg survey. Stockpiles remain near the highest level since 1930, based on monthly records dating back to 1920.

Inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, fell 241,000 barrels to 60.44 million, the fourth straight drop.

Crude production decreased by 112,000 barrels a day to 9.262 million, due to a drop in output from Alaska.

Alaskan Output

“Everyone was keeping an eye on the U.S. production number,” Wittner said. “The entire drop occurred in Alaska and that production is back already.”

The U.S. Energy Department added 313,000 barrels to the nation’s Strategic Petroleum Reserve, bringing it to 691.3 million barrels, the highest in a year.

Gasoline stockpiles dropped 2.77 million barrels to 223.9 million, the lowest since December. Supplies were expected to climb 650,000 barrels, according to the median of 10 analyst estimates in the Bloomberg survey. Demand for the fuel rose 0.2 percent to an average 9.04 million barrels a day in the last four weeks, the highest level since Jan. 9.

‘Bullish One’

“The gasoline number was the most bullish one, coming ahead of the Memorial Day,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “It looks like a lot of gasoline was moving from storage in expectations of a strong kickoff to driving season.”

Refineries operated at 92.4 percent of their capacity, up from 91.2 percent the previous week.

“Crude inventories held up pretty well when you take into account the strong demand from refineries,” Kilduff said.

Oil’s rally may falter on a sustained oversupply as U.S. drillers become more efficient and OPEC refrains from cutting output, according to Deutsche Bank AG. Brent oil is forecast to average $62.50 a barrel for the rest of 2015, while WTI will be $57.50, Michael Lewis, the bank’s global head of commodities research, said at briefing in Singapore on Wednesday.

The U.S. dollar’s strength will be the key driver of prices over the next one to two years, Lewis said.

Deutsche Bank joins Citigroup Inc. and Goldman Sachs Group Inc. in predicting oil’s rebound from a six-year low won’t last amid ample U.S. crude stockpiles and as OPEC prepares for its June 5 meeting in Vienna.

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