OIL CLIMBS TO HIGHEST THIS YEAR AS U.S. CRUDE SUPPLY GAINS EASE

OIL CLIMBS TO HIGHEST THIS YEAR AS U.S. CRUDE SUPPLY GAINS EASE
By Mark Shenk – 4/15/2015
10:44 AM

(Bloomberg) — Oil advanced to the highest level this year in New York after a government report showed U.S. crude stockpiles climbed by the least since January.

Futures rose as much as 3.6 percent. Crude supplies climbed 1.29 million barrels last week, according to the Energy Information Administration. It was the smallest gain since the seven days ended Jan. 2. A 3.6 million-barrel boost was the median of 10 analyst estimates in a Bloomberg survey. Gasoline inventories dropped to the lowest level since December.

Oil prices are almost 50 percent lower than a year ago as the Organization of Petroleum Exporting Countries maintains a policy of defending market share in response to the highest U.S. output in more than three decades. OPEC production rose the most in almost four years in March, the International Energy Agency said Wednesday in a report.

“The supply gain was a lot smaller than what we’ve gotten accustomed to so the report is bearish even though inventories are at the highest level in more than 80 years,” John Kilduff, partner at Again Capital LLC, an energy hedge fund in New York, said by phone. “The big drop in gasoline is also supportive, since it’s the seasonal leader.”

Market Movement

West Texas Intermediate for May delivery increased $1.83, or 3.4 percent, to $55.12 a barrel at 11:04 a.m. on the New York Mercantile Exchange. Futures reached $55.44, the highest level since Dec. 29. Volume was 51 percent above the 100-day average for this time of day.

Brent for May settlement, which expires Wednesday, climbed $1.14, or 2 percent, to $59.57 a barrel on the London-based ICE Futures Europe exchange. The more active June contract gained $1.25, or 2.1 percent, to $61.06. The European benchmark crude traded at a $4.45 premium to WTI.

“We’ve tested the $54 and change area three times since Jan. 2 and retreated,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “If we can hold above it now we’ll reach a new high for the year and start testing new targets.”

U.S. crude supplies have increased for 14 weeks to 483.7 million, the highest level in records compiled by the EIA since August 1982. Monthly data going back to 1920 show stockpiles haven’t been this high since 1930.

Record Supplies

Inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, climbed 1.29 million barrels to a record 61.5 million.

Crude production fell 20,000 barrels a day to 9.38 million last week, according to the EIA. That’s down from 9.42 million on March 20, the most in weekly estimates that started in January 1983. Output has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, unlocked supplies from shale formations in the central U.S.

U.S. drillers cut the number of active rigs seeking oil to the least since 2010, according to Baker Hughes Inc., a sign that production may soon peak.

Output from shale formations such as North Dakota’s Bakken will fall 57,000 barrels a day in May, the EIA said Monday. Deutsche Bank AG, Goldman Sachs Group Inc. and IHS Inc. have projected that U.S. oil production growth will end, at least temporarily, with futures near a six-year low.

Refinery Activity

Refineries operated at 92.3 percent of their capacity, up 2.2 percentage points from the prior week, the report showed. U.S. refiners schedule maintenance for late winter as they transition from winter fuels to maximizing gasoline output.

Supplies of gasoline fell 2.07 million barrels to 227.9 million, the lowest level since December. Inventories of distillate fuel, a category including diesel and heating oil, rose 2.02 million barrels to 128.9 million.

Gasoline futures for May delivery rose 4.29 cents, or 2.3 percent, to $1.8789 a gallon. May ultra low sulfur diesel climbed 3.94 cents, or 2.2 percent, to $1.8411.

OPEC raised output by 890,000 barrels a day to 31.02 million a day in March, the biggest monthly gain since June 2011, the Paris-based IEA said. The group’s 12 members, which pump about 40 percent of the world’s oil, are scheduled to meet June 5 in Vienna.

“OPEC’s core Gulf producers — led by Saudi Arabia — appear to be sticking with their defense of market share,” the IEA said Wednesday in its monthly market report.

The IEA lowered its prediction for North American oil production in the second half of the year by 160,000 barrels a day. That’s partly because of a weaker outlook for the U.S., where drillers have cut the number of rigs in service to the lowest since 2010, according to Baker Hughes Inc.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Stephen Cunningham, Bill Banker