Oil Rebounds From 5 1/2-Year Low on U.S. Refinery Demand

West Texas Intermediate crude rebounded from the lowest in more than 5 1/2 years amid strong demand from U.S. refineries.

WTI rose 1.5 percent after falling below $47 a barrel for the first time since March 2009. Refineries have operated at over 90 percent of capacity for the last two months, according to the Energy Information Administration. Crude supplies dropped last week, while stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, surged, the EIA reported today.

“We’ve heard a lot about weak demand recently, but U.S. refinery demand for crude is still healthy,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The market appears to have been exhausted overnight. It’s already come down such a long way that you would expect it to try and find some equilibrium.”

Crude slumped by 48 percent last year, the most since the 2008 financial crisis, as the U.S. pumped at the fastest pace in more than three decades and the Organization of Petroleum Exporting Countries decided to maintain its output ceiling. The oversupply may take “months or years” to be absorbed, United Arab Emirates Energy Minister Suhail Al Mazrouei said.

WTI for February delivery increased 72 cents to settle at $48.65 a barrel on the New York Mercantile Exchange. It earlier touched $46.83, the lowest intraday level since April 2009. The volume of all futures traded was 46 percent above the 100-day average at 2:56 p.m.

Brent Futures

Brent for February settlement rose 5 cents to end the session at $51.15 a barrel on the London-based ICE Futures Europe exchange. It earlier touched $49.66, the least since April 29, 2009. Volume for all futures traded was 64 percent above the 100-day average. The European benchmark oil closed at a $2.50 premium to WTI, the narrowest since November.

Implied volatility for at-the-money options in the front-month WTI contract rose to 60.2 percent this week, the highest level in more than three years, data compiled by Bloomberg show. It’s about 58 percent today, while Brent’s volatility is almost 49 percent.

U.S. crude stockpiles dropped 3.06 million barrels to 382.4 million in the week ended Jan. 2, according to the EIA, the Energy Department’s statistical arm. Supplies at Cushing, Oklahoma, delivery point for WTI traded in New York, increased 1.31 million barrels to 32.1 million last week, the highest level since February.

Crude Output

Crude production rose 11,000 barrels a day to 9.13 million last week. Output climbed to 9.14 million a day through Dec. 12, the most in weekly data that started in January 1983.

Refineries operated at 93.9 percent of their capacity, down 0.5 percentage point from the prior week.

Inventories of distillate fuel climbed 11.2 million to 136.9 million last week. Gasoline supplies rose 8.12 million barrels to 237.2 million, the highest level since February 2011. Distillate demand tumbled 32 percent to 2.87 million barrels a day last week, while gasoline consumption slipped 8.4 percent.

“Refineries are operating at relatively high rates, which is part of the story for products,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “The other part is that the EIA calculates demand by measuring refinery shipments. Refineries didn’t ship much production during the New Year’s holiday, which allowed supplies to accumulate rapidly.”

Gasoline Futures

Gasoline futures declined 1.67 cents, or 1.2 percent, to $1.3376 a gallon, the lowest settlement since March 11, 2009. Diesel decreased 2.63 cents, or 1.5 percent, to settle at $1.6999, the lowest close since Sept. 28, 2009.

Regular gasoline at U.S. pumps fell to the lowest level since May 2009. The average retail price slipped 0.3 cent to $2.191 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group. Pump prices were around $2.05 a gallon when oil was last below $50 a barrel.

Oil’s oversupply “needs time to be absorbed” and prices this year may depend on output growth from non-OPEC producers, the U.A.E.’s Al Mazrouei said, according to The National, an Abu Dhabi daily. Qatar, another of OPEC’s 12 members, has estimated the global surplus at 2 million barrels a day.

Iranian Viewpoint

Iran has held talks with Russia to reduce supply from the world’s biggest producer, according to Iranian Oil Minister Bijan Namdar Zanganeh. The parties haven’t reached a conclusion yet, the minister was cited by state-run Mehr news agency as saying. While consensus within OPEC to stop the price decline is important, an emergency meeting of the group “won’t in itself solve problems,” Zanganeh said.

OPEC agreed to maintain its output quota at 30 million barrels a day at a Nov. 27 gathering. It’s next scheduled to meet on June 5. The group’s production slipped by 122,000 barrels a day from November to 30.24 million last month, a Bloomberg survey of companies, producers and analysts shows. OPEC’s exceeded its collective target since June.

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