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Oil prices surge on report of falling inventories

MARK WILLIAMS

Thursday, February 19, 2009

COLUMBUS, Ohio — Oil prices jumped Thursday as new U.S. government data showed oil inventories fell unexpectedly and that consumption of gasoline and other petroleum products may be starting to edge higher.

Light, sweet crude for April delivery rose 7 per cent, or $2.77, to settle at $40.18 per barrel on the New York Mercantile Exchange. The vast majority of trades have shifted to the April contract with the March contract expiring Friday.

Benchmark crude for March delivery surged 14 per cent, or $4.86, to settle at $39.48.

The Energy Information Administration said crude stocks decreased 200,000 barrels to 350.6 million barrels for the week ended Friday. Analysts had expected stock to grow by 3.5 million barrels, according to Platts, the energy information arm of McGraw-Hill Cos. Inventories have risen more than 30 million barrels in the prior six weeks.

Even with the decline, crude supplies remain ample and U.S. oil storage sites, including the main depot in Cushing, Okla., are brimming with crude. Storage levels are nearing levels last seen in the summer of 1990 when Iraq invaded Kuwait.

A stunning drop-off in driving by Americans has led to growing levels of gasoline in storage.

Total gasoline inventories rose 1.1 million barrels last week, or 0.5 per cent, to 218.7 million barrels compared with analyst projections of a decline of 1 million barrels.

After declining for most of the past year, the report's four-week moving average showed that gasoline consumption rose 0.8 per cent. Declining demand has been a key factor in stunning drop in oil prices after peaking at $147 last July.

“You're starting to seeing these things turn positive now and that's kind of a big surprise,” Peter Beutel of Camon Hanover of the increase in consumption.

“Demand has been the big bearish story of 2009 and now its changing.”

The Department of Transportation said Thursday that motorists drove 3.8 billion fewer miles in December — when gasoline prices bottomed at $1.61 a gallon after reaching $4.11 in July — than they did in December 2007. The 1.6 per cent decline in driving marks the 14th consecutive month of declining driving with the decline totalling 115 billion miles.

The lower driving figures reflect that fewer people are working. The Labor Department said Thursday that the number of unemployed workers receiving unemployment benefits jumped to an all-time high near 5 million, while new jobless claims remain well above 600,000.

The number of people receiving regular unemployment benefits edged up to 4.99 million, marking the fourth straight week those receiving benefits have been at a record level. The continuing claims figure also was higher than analysts expected.

Rising gas prices in January contributed to an unexpectedly large increase in inflation at the wholesale level in January. The government said wholesale prices increased by 0.8 per cent last month, the biggest gain since last July and sharply above the 0.2 per cent increase that economists had expected.

The acceleration was led by a 3.7 per cent surge in energy prices with gasoline prices jumping by 15 per cent, the biggest gain in more than a year.

Gas prices had risen every day for three weeks until Tuesday.

Prices at the pump dropped 0.8 cents a gallon overnight to $1.957, the third consecutive day of declines, according to auto club AAA, the Oil Price Information Service and Wright Express. Prices are 10.6 cents a higher than a month ago, but $1.104 lower than a year ago.

Meanwhile, natural gas storage levels in the U.S. dropped less than expected last week, and remain well above year-ago levels. Utilities and industrial customers are some of the biggest users of natural gas.

The agency said in its weekly report that natural gas inventories held in underground storage in the lower 48 states fell by 24 billion cubic feet to about 2 trillion cubic feet for the week ended Friday.

Analysts had expected a drop of between 56 billion to 61 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

There are signs that 4.2 million barrels a day of production cuts by the Oil Petroleum Exporting Countries, which make up 40 per cent of the world's oil output, are taking hold.

EIA reported that for its four-week moving average daily crude imports totalled 9.8 million barrels a day for the week ended Feb. 6, down 300,000 barrels from a year ago. Figures from EIA also show oil imports at 9.8 million barrels a day for 2008, a five-year low.

In other Nymex trading, gasoline futures rose cents to $1.085 a gallon. Heating oil gained 4.2 cents to $1.189 a gallon, while natural gas for March delivery fell 15.4 cents to $4.06 per 1,000 cubic feet. Gas last traded at these levels in September 2006, oil analyst and trader Stephen Schork said.

In London, the March Brent contract rose $1.94 to $41.49 on the ICE Futures exchange.

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Cheers; Scott