Oil Reaches 12-Month High Above $78 After Gasoline Supply Falls

By Grant Smith and Yee Kai Pin

Oct. 16 (Bloomberg) -- Crude oil was little changed after rising to a one-year high above $78 a barrel, helped by a larger drop in U.S. gasoline stockpiles than analysts had forecast.

Oil was headed for its biggest weekly gain in almost two months after the Department of Energy said U.S. inventories of motor fuel fell by 5.23 million barrels last week, almost five times the decline analysts forecast and the biggest drop in a year. The main rebel group in Nigeria said it resumed “hostilities” on oil facilities after a cease-fire lapsed.

Crude oil for November delivery traded for $77.43 a barrel, 15 cents lower in electronic trading on the New York Mercantile Exchange as of 10:20 a.m. London time. Earlier it climbed to $78.17 barrel, the highest intraday price since Oct. 15, 2008.

“We’ve broken this year’s high on improved sentiment after the drawdown in gasoline inventories,” said Eliane Tanner, a commodity strategist at Credit Suisse Group AG in Zurich. “But inventories did not decrease due to rising demand, which is still weak, so the risk is we revert to a $68-$75 range.”

Futures are poised to gain 8.6 percent this week, the biggest increase since the five trading days ended Aug. 21, amid signs of a recovery in global energy demand. U.S. gasoline inventories fell to 209.2 million barrels in the week to Oct. 9, a four-week low, the Energy Department said yesterday. Distillate fuel stockpiles also dropped more than forecast.

The supply reduction “completely reverses the cumulative effect of the previous two weeks of softer data,” Barclays Capital analysts led by Paul Horsnell said in a report. “The transition to a $70-to-$80 range is now in full cry.”

Refinery Runs

U.S. refiners reduced processing even as imports decreased, according to the Energy Department. Operating rates averaged 80.9 percent of capacity, down 4.1 percentage points from the previous week to the lowest since mid-April.

Refiners often idle plants in October for repairs and upgrades as gasoline demand eases and before heating-oil consumption picks up with the Northern Hemisphere winter.

“The market now will swing toward looking at the refinery runs as an indicator of demand,” said Mark Pervan, a senior commodity strategist at ANZ Banking Group Ltd. in Melbourne. “It’s at a fairly critically low level. We need to see that turn around because we can’t blame it all on the seasonal slowdown.”

Oil’s rise this week to new highs for the year was supported by a weak U.S. dollar, which attracts investors seeking to hedge against inflation. The U.S. currency fell as low as $1.4967 per euro, the weakest rate since Aug. 13, 2008.

Nigerian Hostilities

In Nigeria, The Movement for the Emancipation of the Niger Delta, which seeks more local control of the region’s oil wealth, started attacking at midnight, spokesman Jomo Gbomo said in an e-mailed statement. He didn’t elaborate.

Rebel attacks on oil infrastructure have curbed Nigeria’s exports by more than 20 percent since 2006. The country, Africa’s most populous nation and a member of the Organization of Petroleum Exporting Countries, is the fifth-largest crude oil supplier to the U.S.

Oil analysts and traders were split over whether oil prices will rise or fall next week. Twelve of 31 respondents in a Bloomberg News survey, or 39 percent, said futures will drop through Oct. 23. Another 12 predicted an increase.

Brent crude oil for December settlement fell as much as 56 cents, or 0.7 percent, to $75.67 a barrel on the London-based ICE Futures Europe exchange. The contract was at $75.79 a barrel at 9:55 a.m. in London. November futures expired yesterday at $74.45 a barrel.

To contact the reporter on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.netGrant Smith in London at gsmith52@bloomberg.net