WTI Reaches Two-Week High on Supply; Brent Premium Slips

West Texas Intermediate oil rose to a two-week high on forecasts U.S. crude inventories will slip as refineries increase production. Brent gained.

Futures advanced 1.1 percent. Crude supplies were probably unchanged at 397.6 million barrels last week as refineries boosted operating rates, according to a Bloomberg survey before a government report tomorrow. Stockpiles reached 399.4 million April 25, the most since the government began publishing weekly data in 1982. Oil also rose after Energy Secretary Ernest Moniz said that the mismatch between rising production of light oil in the U.S. and the country’s refining ability is driving the debate over whether to lift a ban on crude exports.

“There’s a lot of positioning taking place in advance of tomorrow’s inventory report,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “The consensus is for a second draw. After climbing to a record just a couple weeks ago, it appears that the days of testing 400 million barrels are over.”

WTI for June delivery rose $1.11 to $101.70 a barrel on the New York Mercantile Exchange. It was the highest close since April 24. The volume of all futures traded was 7.7 percent above the 100-day average at 4:35 p.m.

Prices were little changed after the American Petroleum Institute said U.S. supplies increased 912,000 barrels last week. WTI gained $1.24, or 1.2 percent, to $101.83 at 4:36 p.m. in electronic trading in New York. Prices were $101.88 before the report was released at 4:30 p.m.

Stockpiles Slip

Brent for June settlement increased 83 cents, or 0.8 percent, to $109.24 a barrel on the London-based ICE Futures Europe exchange. Volume was 18 percent higher than the 100-day average. The European benchmark crude closed at a $7.54 premium to WTI, down from $7.82 yesterday.

U.S. crude supplies fell 1.78 million barrels in the week ended May 2, according to the Energy Information Administration, the Energy Department’s statistical arm. Stockpiles at Cushing, Oklahoma, the delivery point for WTI, probably fell further from the previous week’s five-year low. The API said Cushing supplies fell 590,000 barrels. The EIA is scheduled to release last week’s inventory data at 10:30 a.m. tomorrow in Washington.

Gasoline inventories probably rose by 300,000 barrels last week, according to the median estimate of 11 analysts surveyed by Bloomberg. Supplies of distillate fuel, a category that includes heating oil and diesel, increased by 500,000 barrels, the survey shows.

Refineries probably operated at 90.7 percent of capacity in the seven days ended May 10, up 0.5 percentage point from the prior week, according to the survey.

Moniz Comments

The crude unlocked from shale deposits is too low in density to be absorbed entirely by the U.S. refining system, Moniz told reporters in Seoul today. The remarks highlighted pressure to overturn 1975 legislation that bars exports while U.S. production rises and inventories swell.

“The driver, or the consideration, is that the nature of oil we are producing may not be well-matched to our current refinery capacity,” Moniz said.

U.S. crude production climbed to 8.36 million barrels a day in the week of April 18, the most since 1988, EIA data show.

“I think the comments from Ernest Moniz are really bullish,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The Obama administration is laying the groundwork for the eventual export of oil, which makes a lot of sense.”

Inventory Projections

Oil also gained as rebels in eastern Ukraine said they’re seeking to join Russia after disputed referendums. The U.S. and the European Union said they’re willing to add to sanctions imposed after Russia annexed Crimea in March if President Vladimir Putin doesn’t do more to quell unrest in Ukraine.

“It’s clear we’re moving on inventory projections because much of the geopolitical and financial news we pay attention to is bearish,” Yawger said. “There continues to be unrest in eastern Ukraine but Putin has made no move to annex the region. The dollar is showing continuing strength as well, which should be sending us lower.”

The dollar climbed to the highest level in more than a month against the euro, rising as much as 0.5 percent. A stronger dollar reduces the appeal of dollar-denominated raw materials as an investment.

The global oil market will remain “fairly balanced” this year as supply disruptions including delays at the Kashagan field in Kazakhstan prevent the buildup of a surplus, according to the monthly oil market report from the Organization of Petroleum Exporting Countries published today.

Implied volatility for at-the-money WTI options expiring in July was 16 percent versus 15 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 498,535 contracts at 4:36 p.m. It totaled 445,512 contracts yesterday, 17 percent below the three-month average. Open interest was 1.63 million contracts.

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