Wednesday, May 12, 2010

U.S. Crude Oil Inventories Up Causing Slight Price Fall

By Mark Shenk
May 12 (Bloomberg) -- Crude oil declined in New York after a U.S. government report showed that inventories climbed for the 14th time in 15 weeks.
Supplies of crude oil gained 1.95 million barrels to 362.5 million, the Energy Department said. Stockpiles at Cushing, Oklahoma, where the New York-traded West Texas Intermediate oil grade is stored, rose to a record. The price of oil for prompt delivery dropped more than contracts in future months.
“The inventory build is pulling prices lower,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas- based energy consultant. “The front-month contract is under more pressure than those further out because of the supply glut at Cushing.”
Crude oil for June delivery fell 79 cents, or 1 percent, to $75.58 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Oil is down 4.8 percent this year.
The price of oil on the Nymex for June delivery is $4.55 a barrel lower than for July, the widest divergence between front month contracts since Feb. 13, 2009. The spread between the June and December contracts is $10.32, a contango encouraging buyers to store barrels.
Brent crude oil for June settlement rose 47 cents, or 0.6 percent, to $80.96 on the London-based ICE Futures Europe exchange. Brent, usually cheaper than Nymex futures, is trading at a $5.38-a-barrel premium, the most since Feb. 17, 2009.
Crude supplies rose to the highest level since the week ended May 29, 2009. The increase left stockpiles 6.1 percent above than the five-year average for the period, up from 5.4 percent last week. It was the 14th gain in 15 weeks.
Inventory Forecast
Stockpiles of crude oil were forecast to climb 1.6 million barrels, according to the median of 17 analyst responses in a Bloomberg News survey.
Inventories at Cushing increased 784,000 barrels to 37 million, the second straight week supplies reached the highest level since the department began reporting on supplies at the hub in April 2004.
“There was another build at Cushing, which should put downward pressure on crude,” said Tom Bentz, a broker at BNP Paribas Commodity Futures Inc. in New York. “The gasoline number was a lot more supportive than expected.”
Gasoline inventories fell 2.81 million barrels to 222.1 million last week, the report showed. Supplies of gasoline were forecast to increase by 400,000 barrels, according to the median of analyst responses in the Bloomberg News survey.
Gasoline for June delivery climbed 1.52 cents, or 0.7 percent, to $2.2104 a gallon in New York. Futures touched $2.2345, the highest level since May 5.
Increasing Margin
The margin, or crack spread, for processing three barrels of oil into two of gasoline and one of heating oil surged 9.3 percent to $16.451 a barrel today, based on futures prices. It was the highest level since Feb. 12, 2009.
“The rise in gasoline prices is good for one group, refiners,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “They should see the crack spread widen.”
Refineries operated at 88.4 percent of capacity, down 1.2 percentage points from the prior week and the first decline since March, the report showed.
Oil prices also dropped after the dollar rose against the euro, reducing the appeal of the raw material to investors. The dollar traded at $1.2634 per euro, up 0.2 percent from $1.2662 yesterday.
Market Fundamentals
“The economy and the dollar have been the biggest movers of this market recently, not fundamentals,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at MFC Global Investment Management in Boston. “Eventually we will have to move on the fundamentals because there are plenty of barrels of both crude and products in storage.”
The International Energy Agency cut its estimate of world oil demand this year by 220,000 barrels to 86.4 million barrels a day in a monthly report.
The Organization of Petroleum Exporting Countries bolstered oil output by 40,000 barrels a day in April, according to the IEA. Supplies from the 11 members bound by quotas rose to 26.79 million barrels a day, 70,000 barrels a day more than in March. That means the group’s compliance with the record output cuts slipped to 54 percent last month. Iraq has no output target.
OPEC Barrels
OPEC members will need to pump 28.7 million barrels a day to balance global oil demand and supply this year, according to the IEA. That is 400,000 barrels fewer than the Paris-based agency estimated last month.
Iran, holder of the world’s second-largest oil reserves, may be storing as much as 38 million barrels of crude at sea as demand declines for the heavier, sour grades the Persian Gulf country sells, according to the IEA.
Oil volume on the Nymex was 873,674 contracts as of 2:36 p.m. in New York. Volume totaled 908,890 contracts yesterday, 28 percent greater than the average of the past three months. Open interest was 1.47 million contracts.
To contact the reporter on this story: Mark Shenk in New York
Last Updated: May 12, 2010 14:49 EDT 

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