Oil Jumps on Inventory Data

Crude inventories soar but gas inventories tumble as refiners shutter some production.
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Updated from 11:27 a.m. EST

Crude oil futures eked out a modest increase Wednesday after distillate supplies fell more than expected ahead of the winter heating season.

Light, sweet crude picked up 48 cents to close at $58.76 a barrel on Nymex. Heating oil added 2 cents to $1.69 a gallon and wholesale unleaded gasoline tacked on 3 cents to $1.57 a gallon.

The decrease in distillates, which include fuels like heating oil, was the prime focus of much of the market's attention because it topped analysts' estimates. According to the Department of Energy, supplies of distillates plunged by 3.6 million barrels and gasoline tumbled by 3.7 million barrels last week as refiners produced flat or lower amounts of the fuels and operated at lower capacities. Inventories of gasoline are now 1% below last year, while distillates are 6% higher.

Energy analysts surveyed by

Dow Jones

had drops of 300,000 barrels for gasoline and 131,000 barrels for distillates.

Refineries typically operate at lower-run rates during the spring and fall as they undergo seasonal maintenance. Last week, refiners ran at 87.3%, down from 88.1% the previous week.

With lower refining capacities, crude inventories soared by 1.3 million barrels, above a forecast for a 900,000 barrel-increase. Still, supplies are more than 4% over last year. Crude is processed into fuels like diesel, gasoline and heating oil.

Natural gas inventories are expected to get a boost of 6 billion cubic feet in the U.S. Energy Department's weekly report Thursday, thanks to mild weather last week. The estimate is from

Bloomberg's

survey of energy analysts. Stockpiles are currently 7% above a year ago and nearly 8% above the five-year average.

Natural gas added 14 cents to settle at $8.12 per million British thermal units despite warm weather and brimming supplies. Prices have been volatile, much like crude prices in recent weeks, and are likely to remain that way until temperatures plunge and utilities start drawing on their supplies to generate electricity.

Oil prices have plummeted more than 25% since July as fuel supplies have grown, tensions with Iran, one of the world's top crude producers, have cooled, and few hurricanes have developed to threaten the Gulf of Mexico's petroleum installations. The Organization of the Petroleum Exporting Countries had seemed content so long as oil prices stayed above $60. But when they sagged below that number, ministers quickly acted to trim production by 1.2 million barrels starting in November.

There was some disagreement over the amount of the cut and initially the cartel opted for a drop of 1 million barrels per day. But when that didn't appear to arrest falling prices, OPEC cut deeper to 1.2 million barrels. OPEC's president and Nigerian oil minister Edmund Daukoru suggested the cartel should have slashed output by 1.7 to 1.8 million barrels per day.

"Even at our Doha meeting, the feeling amongst some members was that we should have done more in terms of cutting output," Daukoru told

Dow Jones

Wednesday.

High inventory levels and speculation over whether OPEC's members will uniformly reduce production has kept oil prices trading in a tight range of $57 to $61 over the past few weeks. The cartel may decrease output again at its Dec. 14 meeting in Nigeria. But for now, the group's move "appears to have largely achieved its purpose of stabilizing markets and arresting the sharp fall in oil prices seen the last few months," according to its monthly oil market report released Wednesday.

OPEC appears to be laying the groundwork for another reduction in exports next month. If the cartel continues pumping at its current levels, that may lead to a build of up to 1.4 million barrels in the second quarter vs. a more typical level of 1.1 million barrels. Extra supplies would likely lead to "a further imbalance in supply-demand fundamentals."

The cartel expects the world to use an average of 84.3 million barrels per day this year, which is largely the same as its outlook last month. Growth is slated for 1 million barrels per day this year.

In 2007, however, increased Chinese demand for crude is forecast to boost world oil demand by 1.6% or 1.3 million barrels per day.

Meanwhile, energy shares were gaining ground as crude spiked, with the Amex Oil and the Philadelphia Oil Service Indices rising by 0.4% to 1.8%.

Valero Energy

(VLO) - Get Report

,

Sunoco

(SUN) - Get Report

and

Hess

(HES) - Get Report

were leading advancers among refiners and exploration companies.

Among oil service companies

Halliburton

(HAL) - Get Report

,

Cameron International

(CAM)

and

National OilwellVarco

(NOV) - Get Report

were posting the largest increases, up by as much as 5%.