U.S. Oil Futures Rise on Falling Cushing Inventories

West Texas Intermediate crude rose after a government report showed stockpiles dropped at Cushing, Oklahoma, the contract’s delivery point. Gasoline futures fell to the lowest level in almost five months after supplies gained.

Cushing supplies fell by 1.45 million barrels to 18.8 million last week, according to the Energy Information Administration. The decline left stockpiles at the lowest level since November 2008. Gasoline inventories increased 3.38 million barrels to 217.9 million, the highest level since March. Brent gained as fighting intensified in eastern Ukraine.

“The drop at Cushing reduces the availability of barrels for physical delivery,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Cushing supplies dropped, as did total crude supplies, and refinery runs remain strong, which is supportive for WTI crude oil. A lot of the crude was transformed into gasoline, which is bearish for that market.”

WTI for September delivery advanced 73 cents, or 0.7 percent, to settle at $103.12 a barrel on the New York Mercantile Exchange. The August contract expired yesterday after losing 17 cents to $104.42. The volume of all futures traded was 38 percent above the 100-day average at 3:01 p.m. Prices are up 4.8 percent this year.

Gasoline Weakens

Gasoline for August delivery dropped 2.06 cents, or 0.7 percent, to close at $2.8601 a gallon on the Nymex. It was the lowest settlement since Feb. 28.

U.S. gasoline pump prices fell 0.7 cent to $3.558 a gallon nationwide yesterday, the lowest level since March 31, according to AAA, the largest U.S. motoring group.

WTI is in backwardation, a structure where short-term supplies cost more than later deliveries, curbing the incentive to bolster stockpiles in advance. This pattern has strengthened this year as Cushing supplies have dropped.

“Backwardation is growing wider with the draw at Cushing,” Evans said.

Nationwide crude stockpiles fell 3.97 million barrels to 371 million in the week ended July 18. A 2.9 million-barrel decline in supply was projected by analysts surveyed by Bloomberg.

“There was a big drop at Cushing, which is important because it’s the delivery point for Nymex futures,” said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. “Cushing has been a transit point of oil moving to the Gulf where there’s no shortage. There are plenty of hydrocarbons out there.”

Output Slips

U.S. crude production fell 27,000 barrels a day to 8.565 million. Output has surged this year as a combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations, including the Bakken in North Dakota and the Eagle Ford in Texas.

Gasoline inventories were projected to rise by 1 million barrels in the Bloomberg survey. Stockpiles of distillate fuel, a category that includes diesel and heating oil, were forecast to climb 2 million barrels.

Supplies of distillate fuel rose 1.64 million barrels to 125.9 million, the most since October.

Ultra low sulfur diesel for August delivery increased 2.12 cents, or 0.7 percent, to settle at $2.8754 a gallon in New York. It was the highest close since July 10.

“The drop in crude supplies was bigger than projected, while the gain in gasoline was also larger than forecast,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The crude number is bullish, while the gasoline number is bearish.”

Refining Capacity

Refineries operated at 93.8 percent of capacity, unchanged from the prior week and the highest level since August 2005, the report showed.

The crack spread, the profit to process three barrels of oil into two of gasoline and one of heating oil, slipped 80 cents to $16.77 a barrel based on September settlement prices. The spread narrowed to $16.392 based on August contracts at the July 21 close, the least since November.

“The biggest signal from today’s data is that the crack spread should narrow even further,” O’Grady said.

Separatists shot down two Ukrainian fighter jets in the same region where Malaysian Air flight MH17 was destroyed, the government said. MH17 was shot down over rebel-held territory in eastern Ukraine last week, killing all 298 passengers and crew. The incident threatened to intensify the worst crisis between the West and Russia since the end of the Cold War.

Israel Conflict

U.S. Secretary of State John Kerry flew to Israel in pursuit of a truce in Gaza. Israel doesn’t plan to stop its Gaza Strip offensive as long as the Palestinian territory’s Hamas rulers continue to pose a threat, Justice Minister Tzipi Livni said on Israel Radio.

“This continues to be a headline-driven market and any surprise from Ukraine or Gaza could shake things up,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.

Brent for September settlement rose 70 cents, or 0.7 percent, to end the session at $108.03 a barrel on the London-based ICE Futures Europe exchange. It was the highest close since July 10. The European benchmark crude closed at a $4.91 premium to WTI, little changed from $4.94 yesterday.

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