Crude Oil Falls to Three-Week Low After U.S. Inventory Increase

By Grant Smith and Christian Schmollinger

Feb. 12 (Bloomberg) -- Crude oil fell to a three-week low after a U.S. government report yesterday showed a bigger-than- expected increase in inventories.

U.S. supplies jumped to 350.8 million barrels last week, the highest since June 2007, the Energy Department said. U.S. refiners operated at 81.6 percent of capacity, the lowest since the period ended Oct. 3 when the Gulf Coast was recovering from two hurricanes. OPEC, implementing its biggest ever production cut, will “take additional measures” at its next meeting in March, Venezuelan Oil Minister Rafael Ramirez said.

“Demand is still weak and U.S. inventories are rising so clearly there’s oversupply in the market,” said Eliane Tanner, an analyst at Credit Suisse Group AG. “But we think the worst of the demand destruction is behind us and as OPEC cuts come through the market will tighten.”

Crude oil for March delivery fell as much as 49 cents, or 1.4 percent, to $35.45 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $35.56 at 9:22 a.m. in London.

Yesterday, crude fell as far as $35.65 a barrel, the lowest since Jan. 20. Oil has declined 19 percent this year and dropped 61 percent from a year earlier.

U.S. crude oil inventories have gained in 18 of the past 20 weeks, leaving stockpiles 16 percent higher than the five-year average for the period, the department said yesterday.

Contango Deepens

The price of oil for delivery in April is more than $6 a barrel higher than for March, up from $4.59 last week. December futures are more than $17 above the front month, compared with $13.90 last week.

Prices for delivery in future months are higher than for earlier ones, a situation known as contango, allowing buyers to profit from hoarding oil.

Supplies at Cushing, Oklahoma, where West Texas Intermediate oil traded on Nymex is stored, climbed 1.7 percent to 34.9 million barrels last week, the highest since at least April 2004, when the department began keeping records for the location.

“WTI seems to be in a world of its own right now with these stock builds and that needs to stop or else you’ll continue to see this sharp contango,” said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy in Singapore.

U.S. refinery utilization dropped 1.9 percentage points from the prior week, the Energy Department said. Analysts forecast that there would be no change.

Refinery Maintenance

Companies often shut refinery units for maintenance in January and February as attention shifts away from heating oil and before gasoline use rises.

“In terms of the relative value of products, we are more positive on gasoline,” said Barclay’s Yu. “Following the dip back in September, there has been a consistent improvement in gasoline demand in the U.S. There are early signs the worst is over for now.”

Gasoline inventories fell 2.66 million barrels to 217.6 million, the biggest drop since September. A 500,000 barrel increase was forecast, according to the median of 15 analyst responses in the Bloomberg News survey.

Gasoline’s premium over the crude oil future’s prices, known as the crack spread, has surged to $17.58 a barrel, the highest level since July 2007. The four-week average of demand for the motor fuel has climbed by 68,000 barrels a day from the week ended Jan. 30.

Gasoline Demand

Brent crude oil for March settlement was at $44.46 a barrel, up 18 cents, on London’s ICE Futures Europe exchange at 9:25 a.m. London time. The contract expires today. The more- active April future was at $45.45 a barrel, up 13 cents, at 9:27 a.m. London time.

Brent futures are at a premium of more than $8 over West Texas Intermediate, the grade that’s traded in New York.

The Organization of Petroleum Exporting Countries pumped 29 million barrels a day of crude in January, 950,000 barrels a day less than in December, as the cartel implemented announced supply cuts, the International Energy Agency said in its monthly report yesterday.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net.