Oil prices rose after government report

AP

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NEW YORK (AP) – Oil prices surged Wednesday after the government’s weekly U.S. petroleum supply report showed a large and unexpected decline in gasoline stockpiles and a 2.6 percent drop in refinery utilization.

Despite a surprising buildup in crude oil inventories, traders focused on the fact that gasoline inventories and refinery capacity in use are both falling just before the vacation driving season.

That’s sparking worries about whether refiners can adequately supply summer driving demand.

"This is a severe decline in gasoline inventories," said Tim Evans, energy analyst at Citigroup Global Markets.

If oil traded in a vacuum, its price would have risen on the report, he said.

"This is indeed a bearish report for crude oil," said Evans. "But right now, (traders) don’t care nearly as much about crude oil as we do about gas."

"Gasoline has been the market leader," said Peter Beutel at Cameron Hanover. "And today, that really reasserted itself."

The report by the U.S. Department of Energy’s Energy Information Administration showed that crude oil inventories rose by 2.1 million barrels in the week ending Friday to 334.5 million barrels. Traders, on average, had expected crude oil inventories to fall by 1.2 million barrels, according to a Dow Jones Newswires survey of analyst estimates.

On the other hand, gasoline inventories fell by 2.8 million barrels. Analysts had expected a 200,000–barrel increase in gasoline inventories. Distillate stockpiles, which include heating oil and diesel fuel, remained flat as heating oil inventories fell while diesel stockpiles rose.

Light, sweet crude for June delivery rose $1.26 cents to settle at $65.84 on the New York Mercantile Exchange. The contract fell $1.31 a barrel on Tuesday.

Brent crude for June delivery gained $1.41 to settle at $68.57 a barrel on the ICE Futures exchange in London.

Gasoline futures, which one would expect to rise strongly on the report, gained 7.37 cents to settle at $2.2826 a gallon.

"This doesn’t mean that this is the market’s final say," Evans said, suggesting gasoline futures prices could rise further on Thursday.

The average retail price of a gallon of gasoline rose less than a penny Wednesday, to $2.864, before the EIA report was issued.

"Market participants are concerned that, even though U.S. refineries are increasing production, they will not be able to fully satisfy demand ahead of the busy summer driving season," said Michael Davies, an oil analyst at Sucden in London.

"We’re basically at the lowest level since Oct. 7, 2005," Evans said of gasoline inventories. "We’ve got this real scary low level of inventory."

Problems this week at a BP refinery in Whiting, Indiana, and a ConocoPhillips refinery in Wilmington, California, are contributing to supply concerns, wrote Barclays Capital analysts in a Wednesday research note.

Beutel said reported problems often represent just the tip of the iceberg in the refining industry.

"A lot of stuff goes on behind the scenes," he said, noting that many big refiners report nothing about their operations.

Still, Evans said, "(Refiners) do have an impressive track record of catching up on supply at the last moment."

In other Nymex trading, heating oil futures rose 5.55 cents to settle at $1.9015 a gallon, while natural gas prices rose 9.1 cents to settle at $7.689 per 1,000 cubic feet.