Oil Is Steady After Rising More Than $4 on Gasoline-Supply Drop

By Mark Shenk

July 31 (Bloomberg) -- Crude oil was little changed after rallying more than $4 a barrel yesterday, the biggest gain since July 10, as a U.S. Energy Department report showed gasoline inventories declined for the first time in five weeks.

Supplies fell 3.53 million barrels to 213.6 million barrels last week, the department said yesterday. Stockpiles were forecast to rise 350,000 barrels, according to a Bloomberg News survey. Oil supplies fell less than forecast and inventories of distillate fuel, which includes heating oil and diesel, rose.

``We are focused on the gasoline number because it had the greatest variance from expectations,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``This is the first bullish gasoline news in weeks.''

Crude oil for September delivery was unchanged at $126.77 a barrel at 8:22 a.m. Sydney time. Prices are up 75 percent from a year ago. Futures gained $4.58, or 3.8 percent, to settle at $126.77 a barrel yesterday, the highest close since July 22. They touched $120.42 a barrel July 29, the lowest since May 6.

U.S. fuel consumption averaged 20.2 million barrels a day in the past four weeks, down 2.4 percent from a year earlier, the department said.

Gasoline demand in the U.S. peaks during the summer, when Americans take to the highways for vacations. The so-called driving season lasts from the Memorial Day weekend in late May to Labor Day in early September.

`Eye-Opening' Number

``The gasoline number is eye-opening,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``It's getting most of the attention, but the driving season is coming to an end with only one month left and supplies are still ample.''

The drop in gasoline inventories last week left stockpiles 3 percent higher than the five-year average for the period, the department said.

Gasoline for August delivery rose 12.74 cents, or 4.2 percent, to settle at $3.1351 a gallon in New York, the highest close since July 22. It was the biggest one-day increase since June 11. Prices touched $2.9801 July 29, the lowest since May 5. Futures reached a record $3.631 a gallon on July 11.

Pump prices are following changes in futures. Regular gasoline, averaged nationwide, fell 1.5 cents to $3.926 a gallon, AAA, the nation's largest motorist organization, said on its Web site. Prices reached a record $4.114 a gallon on July 17.

``Gasoline has been the weakest link in the energy complex,'' said Kyle Cooper, an analyst at IAF Advisors in Houston. ``The gasoline number is a little bright light for the bulls, because otherwise the report is pretty bearish.''

Distillate Supplies

Crude oil supplies declined 81,000 barrels to 295.2 million barrels last week, the report showed. A 1.3 million barrel drop was forecast in the Bloomberg News survey.

Inventories of distillate fuel rose 2.4 million barrels to 130.5 million barrels last week, the report showed. A gain of 2.05 million was forecast, according to the median of 12 analyst estimates.

``I believe the distillate build is more important than the gasoline number,'' Mueller said. ``It shows that refiners are turning their attention to the winter.''

Goldman Sachs Group Inc., the world's biggest securities firm, said oil will recover to reach $149 a barrel by the end of this year because consumer demand has been ``restrained, but not destroyed,'' by record prices.

``The gasoline number obviously started the move higher,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``It's also part technical because we failed to take out $120. The Goldman Sachs Group Inc. is also a part of what's moving things higher.''

Nigerian Oil

Falling Nigerian output is also supporting prices. Nigeria is now producing less than 1 million barrels of crude a day because of attacks by militants, ThisDay reported, citing an unidentified energy ministry official. Nigeria was the fourth- biggest source of U.S. oil imports during the first five months of the year, according to the U.S. Energy Department.

Prior to the escalation of militant attacks that began in February 2006, Nigeria pumped as much as 2.6 million barrels a day, the paper said. The country was Africa's biggest oil producer until April when it was surpassed by Angola.

Iranian Supreme Leader Ayatollah Ali Khamenei said his country will push forward with its nuclear program. The nation's highest authority spoke before a deadline for Iran to reply to an offer from world powers of economic and diplomatic incentives in exchange for the suspension of its uranium-enrichment activities.

``Iran will pursue its peaceful nuclear energy,'' state television cited Khamenei as saying yesterday. ``No one can undermine the nation's attempt to progress.''

Concern that the dispute over Iran's nuclear program might disrupt shipments from the country has supported prices since January 2006.

Brent crude oil for September settlement rose $4.39, or 3.6 percent, yesterday to settle at $127.10 a barrel on London's ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.