Oil Trades Near $72 After Supplies Drop to Lowest Since January

By Grant Smith and Christian Schmollinger

Sept. 17 (Bloomberg) -- Oil traded little changed near $72 a barrel in New York after the Energy Department reported that U.S. crude stockpiles dropped to the lowest level since January.

The inventories fell by 4.73 million barrels, the weekly report showed yesterday, more than the 2.5 million-barrel decline forecast by analysts in a Bloomberg News survey. Crude prices were also helped by the dollar, which extended declines to the weakest level in almost a year. Global equities advanced, spurring expectations of improving fuel demand.

“Fundamentals are improving a bit and now they’re better able to justify the actual oil price level,” said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich in Vienna. “Inventories are coming down week by week, but it’s still going to be hard for crude to pass $75.”

Crude oil for October delivery was at $72.55 a barrel, up 4 cents, in electronic trading on the New York Mercantile Exchange at 9:23 a.m. in London. Yesterday, the contract rose $1.58, or 2.2 percent, to $72.51. Futures are up 63 percent this year.

The dollar fell to as low as $1.4767 per euro from $1.4709 yesterday in New York, the weakest level since Sept. 25, 2008. A lower dollar increases the appeal of commodities as an alternative investment and hedge against inflation.

“The dollar continues to hit new lows and equities markets are rallying, giving support to the renewed global economy, which will consume more oil,” said Mike Sander, an investment adviser at Sander Capital in Seattle. “There are not a lot of reasons to bet against oil at this point.”

Fuel Supplies

Crude stockpiles in the U.S., the biggest energy-consuming nation, fell to 332.8 million barrels, the Energy Department said. Stockpiles of distillate fuel climbed 2.24 million barrels to 167.8 million, the highest since January 1983. Gasoline inventories rose 547,000 barrels to 207.7 million last week, the department said.

Refineries operated at a three-week low of 86.9 percent of capacity in the week ended Sept. 11, down 0.3 percentage point from the previous week, according to the department.

Refiner’s profit margins have collapsed in the past month on expectations of falling fuel demand with the end of the peak summer demand season for gasoline. The profit from turning three barrels of crude into two barrels of gasoline and one barrel of heating oil has dropped to $4.72 a barrel today from $13.46 a month earlier.

“The crack spread and refining margins and the distillate inventories are all troubling,” said Victor Shum, a senior principal at consultant Purvin & Gertz Inc. in Singapore. “It points to the fact that U.S. refiners are likely to cut runs in the coming weeks.”

European and Asian stocks advanced, pushing the MSCI World Index higher for a third day, as Ireland detailed its plan to purge banks of toxic assets and gains in metal prices boosted earnings prospects for mining companies.

Brent crude oil for November settlement was at $71.64 a barrel, down 3 cents, on the London-based ICE Futures Europe exchange at 9:23 a.m. London time. Yesterday, the contract jumped 2.6 percent to $71.67, the highest since Aug. 28.

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