Oil Is Steady After More Than $5 Slump on Gasoline Supply Gain

By Mark Shenk

Nov. 6 (Bloomberg) -- Crude oil was little changed after falling more than $5 a barrel yesterday as an Energy Department report showed an unexpected increase in gasoline inventories.

Gasoline supplies rose 1.12 million barrels to 196.1 million barrels last week, the report showed. A 650,000-barrel drop was forecast, according to the median of 14 analysts surveyed by Bloomberg News. Stockpiles of crude oil and distillate fuel, a category that includes heating oil and diesel, also climbed.

``There is plenty of inventory, given how weak demand is,'' said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. ``The report was mildly bearish because of the product numbers.''

Crude oil for December delivery fell 9 cents to $65.21 a barrel at 10:36 a.m. Sydney time on the New York Mercantile Exchange. Prices, which have tumbled 55 percent since reaching a record $147.27 on July 11, are down 33 percent from a year ago. Yesterday, futures plunged $5.23, or 7.4 percent, to $65.30 a barrel, the biggest drop since Oct. 10.

Gasoline for December delivery rose 0.06 cent to $1.4250 a gallon in New York. Yesterday, it declined 10.83 cents, or 7.1 percent, to $1.4244 a gallon.

Pump prices have followed futures lower. Regular gasoline, averaged nationwide, declined 2.6 cents to $2.365 a gallon, AAA, the nation's largest motorist organization, said yesterday on its Web site. The fuel has tumbled 43 percent from the record $4.114 a gallon reached on July 17.

Gasoline Demand

U.S. fuel demand during the past four weeks averaged 19.1 million barrels a day, down 6.7 percent from a year ago, the report showed. Gasoline consumption over the period was down 2.3 percent at 9 million barrels a day.

``We are probably most comfortable in the mid-$60 range unless we get another massive drop in the stock market,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``We are out of the peak gasoline demand period and have yet to see heating-oil demand pick up, so there's not much to support a move higher.''

Gasoline consumption in the U.S. peaks during the summer, when Americans take to the highways for vacations. Global fuel demand peaks during the Northern Hemisphere winter.

Futures rose $6.62, or 10 percent, to $70.53 a barrel Nov. 4, the largest one-day gain since Sept. 22, as U.S. stock markets recorded the biggest presidential-election day rally since Ronald Reagan won a second term 24 years ago.

`Overdone to the Upside'

The move ``was way overdone to the upside,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``The surprising gasoline build is going to keep the pressure on the crack spread.''

The profit margin, or crack spread, for making three barrels of crude into two of gasoline and one of heating oil, based on futures prices, has dropped 80 percent to $3.42 a barrel since Sept. 12. The margin for refining crude into gasoline has been negative since Oct. 21.

Distillate inventories rose 1.21 million barrels to 127.8 million barrels last week. Analysts forecast that supplies would increase by 1.55 million barrels.

Crude oil stockpiles climbed 54,000 barrels to 311.9 million barrels in the week ended Oct. 31, the department said. A 1 million-barrel gain was forecast. Imports dropped 365,000 barrels to 9.97 million barrels a day. The department released its weekly report yesterday in Washington.

Economic Concern

Prices also fell because of concern that the economy of the U.S., the world's biggest energy consumer, will continue to contract. Companies in the U.S. cut an estimated 157,000 jobs in October, the most in almost six years, a private report based on payroll data showed yesterday.

The drop was larger than forecast and followed a revised 26,000 decrease in September that was bigger than previously estimated, ADP Employer Services said. The decline in employment was the biggest since November 2002, when the U.S. was emerging from a recession.

The Institute for Supply Management's non-manufacturing index, which covers almost 90 percent of the economy, dropped to 44.4 from 50.2 in September, the Tempe, Arizona-based group said yesterday. A reading of 50 is the dividing line between growth and contraction.

Brent crude oil for December settlement declined $4.57, or 6.9 percent, to settle at $61.87 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.