Crude Climbs Most This Year as Gasoline Supply Tumbles

West Texas Intermediate crude jumped the most this year as a government report showed that U.S. gasoline stockpiles tumbled while oil inventories rose less than analysts estimated.

Futures advanced 2.5 percent after the Energy Information Administration said gasoline supplies fell 3.93 million barrels last week to 217.8 million in the biggest drop in a year. Demand gained and refineries cut operating rates. Crude in storage climbed 947,000 barrels to 388.6 million, below the 2 million-barrel projection in a Bloomberg survey of analysts. Brent oil’s premium to WTI in New York narrowed to the smallest level since January 2012.

“The gasoline number was profoundly bullish,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The crude build was smaller than expected and once refineries are back up and running, we might start to see some supply draws.”

WTI crude for June delivery rose $2.25 to $91.43 a barrel on the New York Mercantile Exchange, the highest settlement since April 11. It was the biggest gain since Dec. 26. The volume of all futures traded was 7.7 percent below the 100-day average at 3:14 p.m.

Brent oil for June settlement advanced $1.42, or 1.4 percent, to end the session at $101.73 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 5.5 percent below the 100-day average.

WTI-Brent Spread

The European benchmark grade traded at a premium of $10.30 to WTI, down from $11.13 yesterday and the narrowest level since Jan. 18, 2012. The spread slipped after Genscape Inc. said BP Plc increased flows on the BP1 pipeline that links Cushing, Oklahoma, to its Whiting, Indiana, refinery to 172,000 barrels a day from about 86,000.

The 1.8 percent decline in gasoline stockpiles was the biggest since the week ended April 6, 2012, according to the EIA, the Energy Department’s statistical unit. Supplies of the fuel were projected to fall 600,000 barrels, according to the median of 11 analyst responses in the Bloomberg survey.

“The gasoline inventory number is very bullish,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The gasoline number had the largest variance from the expectations.”

Gasoline for May delivery rose 2.84 cents, or 1 percent, to $2.7474 a gallon on the Nymex.

Demand for gasoline increased 4.4 percent to 8.75 million barrels a day last week, the highest level since November, the EIA report showed.

Driving Season

Refineries operated at 83.5 percent of capacity last week, down 2.8 percentage points from the seven days ended April 12. Units are often reopened in the spring after being idled for maintenance in late winter as attention moves away from heating oil and before the peak season for gasoline consumption, which runs from late May until early September.

“It’s late April and attention is starting to shift to gasoline because driving season begins in about a month,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania.

Motiva Enterprises LLC closed the 600,000-barrel-a-day Port Arthur, Texas, refinery, the largest in the U.S., after an April 14 power failure, a person familiar with the operations said. Total Petrochemicals U.S. Inc. reported a fire on April 14 in addition to the power failure that caused “operational upsets” at the company’s 174,000-barrel-a-day plant in Port Arthur.

“The power outage in Port Arthur played a big part in the fall in refinery utilization,” Evans said.

Surging Output

Crude production rose 118,000 barrels a day to 7.33 million, the most since April 1992, EIA data show. Output has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in the central U.S. Inventories reached a 22-year high of 388.9 million on April 5.

Stockpiles at Cushing, the delivery point for futures traded in New York, increased 35,000 barrels to 51.2 million, the EIA reported.

Oil also climbed on speculation that European Central Bank policy makers will cut the ECB’s key interest rate to a record low at their May 2 meeting. Banks including UBS AG and Royal Bank of Scotland Group Plc forecast that the ECB will reduce borrowing costs to 0.5 percent.

“We’re looking to Europe for guidance today,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The prospect of an ECB rate cut is trumping the supply picture. Crude supplies in the U.S. are ample and production is surging.”

$100 Floor

Venezuelan Oil Minister Rafael Ramirez said April 18 that $100 should be the crude price floor and he would inquire about an extraordinary OPEC meeting. The Organization of Petroleum Exporting Countries’ next scheduled meeting is on May 31.

“The $100 level is important psychologically, because that’s what OPEC is prepared to defend,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Massachusetts. “You have to be very bold to buy Brent at $100 because OPEC might take action at any moment.”

Implied volatility for at-the-money WTI options expiring in June was 21.2 percent, down from 23.1 percent yesterday.

Electronic trading volume on the Nymex was 435,436 contracts as of 3:14 p.m. It totaled 622,229 contracts yesterday, 5.9 percent higher than the three-month average. Open interest was 1.72 million contracts.

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