Oil Rises as Refiners Expand Output to Meet U.S. Summer Demand

By Christian Schmollinger and Ben Sharples

May 7 (Bloomberg) -- Crude oil extended yesterday’s 4.6 percent gain after an Energy Department report showed U.S. refinery demand climbed as output ramped up to meet fuel consumption ahead of the summer peak.

Refineries operated at 85.3 percent of capacity last week, up 2.7 percentage points from the week before and the highest since December, according to the report. Overall oil stockpiles rose by a less-than-expected 605,000 barrels. Inventories along the Gulf Coast, home to the bulk of U.S. crude processors, fell 1.85 million barrels, the first drop in nine weeks.

“It’s only natural that at this time of year the refiners start pumping out more gasoline,” said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy. “I’d expect refiners to draw down their crude inventories to put out more gasoline. We’ve broken through some resistance levels and they start to become support levels.”

Crude oil for June delivery rose as much as 56 cents, or 1 percent, to $56.90 a barrel on the New York Mercantile Exchange. It was at $56.80 a barrel at 10:17 a.m. Singapore time. Yesterday, the contract climbed $2.50 to $56.34, the highest settlement since Nov. 14. Futures are up 26 percent this year.

Crude had been trading between $43.83 a barrel and $53.90 a barrel in April on higher U.S. inventories and as equity markets gained on speculation the economy will recover later this year.

Overall U.S. crude supplies rose to 375.3 million last week, the highest since 1990, the Energy Department said yesterday.

West Coast Gain

A gain in oil supplies on the U.S. West Coast was responsible for the nationwide increase, the Energy Department report showed. Stockpiles there rose 2.31 million barrels to 60.8 million. The region’s distribution system is isolated from the rest of the country.

The U.S. Gulf Coast states are home to 56 of the country’s 146 refineries totaling 8.4 million barrels a day of capacity.

U.S. equities advanced as investors speculated banks don’t need as much capital as had been projected and a report showed employers cut fewer jobs than economists estimated.

ADP Employer Services said U.S. companies eliminated 491,000 positions last month, less than the 645,000 estimated in a Bloomberg News survey of economists.

“The macro-economic optimism is continuing to build,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “You would have to be looking at $60 a barrel as the next upside target.”

Gasoline Crack

Gasoline supplies fell 167,000 barrels to 212.4 million in the week ended May 1, the Energy Department report showed. A 550,000-barrel gain was forecast, according to the median of 16 analyst responses in the Bloomberg News survey.

Supplies of distillate fuel, a category that includes heating oil and diesel, rose 2.43 million barrels to 146.5 million last week, the highest since October 2006, according to the department. A 900,000-barrel gain was forecast.

Refiners have more incentive to produce gasoline as the processing profit, or crack spread, for the motor fuel has climbed 37 percent since April 24 to $12.73 a barrel today. That price is 70 percent higher than the same time last year.

“The surest sign that you’ll start to see the refiners come back is the strength in the gasoline crack,” said Hudson Capital’s Kornafel. “The crack has been soft for so long now and now that it’s coming back the refiners are going to want to put out some product.”

Gasoline futures for June delivery were at $1.6530 a gallon, up 2.5 cents, on the Nymex at 10:13 a.m. Singapore time. It climbed 5.58 cents, or 3.5 percent, to $1.628 a gallon yesterday in New York, the highest settlement since Oct. 21.

Heating oil for June delivery rose 4.51 cents, or 3.2 percent, to end the session at $1.4713 a gallon, the highest since March 26.

Brent crude oil for June settlement rose as much as 73 cents, or 1.3 percent, to $56.88 a barrel on London’s ICE Futures Europe exchange. It was at $56.74 a barrel at 10:16 a.m. Singapore time. It increased $2.03, or 3.8 percent, to end yesterday’s session at $56.15, the highest since Nov. 10.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Ben Sharples in Melbourne bsharples@bloomberg.net.