Oil Is Little Changed as Stockpiles Gain, Refiners Cut Output

By Christian Schmollinger

Jan. 29 (Bloomberg) -- Oil was little changed in New York after U.S. crude inventories gained more than expected last week and refiners reduced output as demand declined.

Crude oil stockpiles for the week ended Jan. 23 climbed by 6.2 million barrels to 338.8 million barrels, the highest since August 2007, the Energy Department said yesterday. Analysts in a Bloomberg survey had expected a 2.9 million barrel increase. Refineries operated at 82.5 percent of capacity last week, down from 83.3 percent.

“That surprise stock build helped to push the front month lower,” said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy in Singapore. Refinery runs were down “because of maintenance ahead of the summer driving season to prepare to make gasoline, and the second thing is that gasoline margins are so weak that they are just shutting down.”

Crude oil for March delivery was at $42 a barrel, down 16 cents, at 10:15 a.m. Singapore time on the New York Mercantile Exchange. Yesterday, oil rose 58 cents, or 1.4 percent, to settle at $42.16 in New York. Prices are down 5.9 percent this year and are 54 percent lower than a year ago.

Supplies at Cushing, Oklahoma, where oil traded on Nymex is stored, climbed 0.9 percent to 33.5 million barrels last week, the highest since at least April 2004, when the department began keeping records for the location. Total capacity there is 47.7 million barrels, according to Lipow Oil Associates LLC.

Plant Shutdowns

Refinery output fell as companies announced shutdowns for maintenance to switch their production from heating oil to gasoline ahead of the peak motor fuel demand period starting May. Analysts had forecast that processors would operate at 82.8 percent of capacity.

ConocoPhillips, the second-largest U.S. refiner, expects refinery operating rates near 80 percent during the first quarter due to planned turnarounds and hydro-skimming economics.

Crude and motor fuel prices rose yesterday after gasoline supplies fell 121,000 barrels to 219.9 million barrels last week, the U.S. Energy Department said. Inventories were forecast to climb 2 million barrels, according to the median estimate in a Bloomberg survey.

The profit margin, or crack spread, for making a barrel of crude into one of gasoline, based on futures prices, climbed 36 percent to $8.475 a barrel yesterday. It was at $8.610 a barrel today.

“Everyone was caught off guard and you can clearly see that in what happened to the gasoline crack,” said Hudson Capital’s Kornafel. “When you see that kind of movement in a derivative of a derivative, then that tells you no one had any advanced inkling.”

Product Imports

Imports of oil products, including gasoline and distillate fuels, fell 3.6 percent last week to 3.6 million barrels, the Energy Department said.

BP Plc, Europe’s second-largest oil company, may shut four U.S. refineries that can process 1.3 million barrels a day of crude oil if United Steelworkers union members target the refineries for a strike. Exxon Mobil Corp., the world’s largest oil company, said its refineries will operate if there’s a work stoppage.

Brent crude oil for March settlement fell 40 cents, or 0.9 percent, to $44.50 a barrel on London’s ICE Futures Europe exchange at 9:37 a.m. Singapore time. The contract yesterday increased $1.17, or 2.7 percent, to settle at $44.90 a barrel.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.