Crude-oil futures prices climbed 1% to settle at a near four-month high Wednesday, after a surprise decline in nationwide U.S. crude-oil stocks.
Data from the Energy Information Administration showed crude-oil stocks fell by 951,000 barrels in the week ended Jan. 11, while forecasters had called for a rise of 2.1 million barrels. The drop was caused by a reduction of crude-oil imports on the West Coast.
Analysts said that in steering prices higher, market players put strong emphasis on certain bullish aspects of the report while ignoring some other elements of the report that may not be suggestive of higher prices.
Crude-oil stocks are at multidecade highs for this time of year, and while demand for gasoline and distillate fuel (diesel/heating oil) rose in the week, the gain came from extremely low levels. Total demand for petroleum products averaged less than 18 million barrels a day for the second straight week, something that hasn't occurred in nearly a year.
"It's not a surprise that crude popped a little higher on the surprise draw, but a sub-one million barrel [crude oil stock] draw doesn't seem to warrant such a large move," said Matt Smith, an analyst at Summit Energy.
Gene McGillian, broker and analyst at Tradition Energy, cited gains coming on "expectations of improvement in the economy, but as the last few months have shown, that's not a straight line upwards." He said the market will need to see strong demand for several weeks to hold on to gains.
Light, sweet crude oil for February delivery on the New York Mercantile Exchange settled 96 cents higher, at $94.24 a barrel, the most since Sept. 18. ICE North Sea Brent crude oil for February expired 31 cents higher at $110.61 a barrel. Brent's premium to the Nymex contract dropped to a four-month low of $16.37 a barrel. March Brent settled 5 cents higher, at $109.68 a barrel.
Despite the decline, nationwide U.S. crude oil stocks stand at a 30-year high for this week and are 8.8% above the year-earlier level, EIA data show. Measured against current refinery-processing rates, crude stocks cover 23.9 days of refiner demand, a 19-year high for the week and compared with the five-year average of 22.3 days.
Crude-oil inventories at Cushing, Okla., the Midwestern hub that is the delivery point for the benchmark U.S. futures contract, rose 1.78 million barrels to a record high 51.862 million barrels last week, the EIA said.
Analysts said the rise at Cushing and a drop to one-year lows in Gulf Coast stocks reflected the temporary closure of the Seaway Pipeline ahead of its expansion. The shutdown halted flows of 150,000 barrels a day of crude from Cushing to the Gulf, but the expanded system is now running at a rate of 400,000 barrels a day. Cushing stocks, which have risen by 13.7% over the past seven weeks, could record a drawdown next week, analysts said.
Traders expect the price of the Nymex contract to gain at the expense of Brent as U.S. crudes are able to compete in the Gulf with imports that are priced in relation to Brent.
Gasoline inventories climbed for an eighth-straight week and stand at the highest level for this time of year on EIA data beginning in 1990. Stocks are highest in any week in nearly two years, since February 2011.
Normally, rising stocks would pressure prices, but the gain of 1.91 million barrels was below expectations.
Gasoline stocks have climbed more than 17.3% in the past eight weeks. But the modest rise last week reduced the size of the surplus to the year-ago and five-year-average levels.
Gasoline and distillate demand rose from extremely low levels in recent weeks, which reflected lower deliveries from primary storage sites, such as refineries during the holidays.
Despite the rise in nationwide gasoline stocks, inventories in the heavily populated Northeast remain low, at nearly 8.8% below a year earlier and 14.5% below the five-year average for this time of year.
The EIA also said distillate stocks (diesel/heating oil) rose by 1.686 million barrels, which was slightly more than expected.
Demand for distillate rose 11.7% in the week, from a three-and-half-year low a week earlier, but still lagged behind the year-earlier level by 5.2%.
Distillate stocks nationwide are 10.5% below a year ago and at a five-year low for the week. In the Northeast U.S., the main heating oil region, distillate stocks are 30% below the five-year average for this time of year.
February reformulated gasoline blendstock futures posted the biggest rise in a week, settling up 1.48 cents, at $2.7214 a gallon, while heating oil fell 1.22 cents, to $2.9991 a gallon, the lowest price in a month.
Copyright (c) 2012 Dow Jones & Company, Inc.
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