Oil Steady After Falling on Report That Showed Supplies Climbed

By Mark Shenk and Samantha Zee

March 26 (Bloomberg) -- Crude oil was little changed after falling yesterday on a government report that showed U.S. inventories climbed to the highest since 1993 because of deteriorating demand.

Supplies rose 3.3 million barrels to 356.6 million last week, the Energy Department said yesterday. Inventories were forecast to increase by 1.1 million barrels, according to a Bloomberg News survey. Stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, dropped as refineries cut operating rates.

“There’s more crude than we need,” said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $9 billion natural-resource-company bond portfolio. “Until demand starts to move higher I don’t see this market moving higher.”

Crude oil for May delivery rose 8 cents, or 0.2 percent, to trade at $52.85 a barrel at 9:37 a.m. Sydney time on the New York Mercantile Exchange. May futures fell $1.21, or 2.2 percent, to settle at $52.77 a barrel yesterday. Prices are up 19 percent this year.

The inventory gain was the 22nd in 26 weeks. The increase left supplies 13 percent higher than the five-year average for the period, the department said.

Imports of crude oil increased 204,000 barrels a day to 9.38 million in the week ended March 20, the highest level in six weeks, the report showed.

Stockpiles at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude is delivered, fell 2.21 million barrels to 31.7 million last week. Supplies in the week ended Feb. 6 were the highest since at least April 2004, when the Energy Department began keeping records for the location.

Surging Inventories

“It’s hard to get bullish about crude oil with inventories at the highest since 1993,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “The only thing that’s positive for crude prices is the fall in supplies at Cushing.”

Consumption of fuels rose 2.2 percent to 19.2 million barrels a day last week. Total daily fuel demand averaged over the past four weeks was 19.1 million barrels, down 3.2 percent from a year earlier.

Refineries operated at 82 percent of capacity, down 0.1 percentage point from the prior week, the Energy Department said.

“There was a slight improvement in demand last week, but refiners obviously aren’t too excited because of the cut in” operations, said Mike Zarembski, senior commodity analyst at OptionsXpress Holdings Inc. in Chicago. “The biggest risk is that the economy will improve and they will be too slow to increase production.”

Fuel Supplies

Gasoline stockpiles dropped 1.14 million barrels to 214.6 million last week. The decline left inventories 0.4 percent lower than the five-year average for the week, the department said. A 650,000-barrel drop was forecast, according to the median of 14 analyst responses in a Bloomberg News survey.

Distillate supplies declined 1.58 million barrels to 143.9 million, leaving stockpiles 25 percent above the five-year average for the period. A 100,000-barrel drop was forecast.

The Organization of Petroleum Exporting Countries agreed to hold output targets steady at its meeting in Vienna on March 15 on concern higher prices may harm an ailing global economy. Ministers pledged to tighten compliance with record cutbacks agreed on last year to bolster prices.

Cut a Lot

“Inventories are high, but OPEC has cut a lot of oil,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. “In January and February, they have cut 2.7 million barrels. That should be enough over the next few months to make some progress on inventories as long as the economy doesn’t get any worse.”

Total SA, Europe’s third-largest oil company, is shutting output at its Port Arthur, Texas, refinery in response to weakening demand. The company said in a filing with the Texas Department of Environmental Quality March 24 that it began closing units at the facility.

“The U.S. market has deteriorated a lot and we are adjusting to this,” Total spokesman Michael Crochet-Vourey said by telephone in Paris yesterday.

Production at the facility, which has the capacity to process 240,000 barrels of oil a day, will be stopped for weeks, United Steelworkers union members who work at the plant said.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net.