Oil Extends Gains After Unexpected Decline in U.S. Inventories - Bloomberg

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Crude oil in New York rose above $100 a barrel for a second day and gasoline surged to a 30-month high on concern that the unrest curbing exports from Libya will spread to other countries in the region.

Oil futures advanced as much as 2.8 percent as Libyan forces loyal to Muammar Qaddafi attacked rebels on the east coast where much of the country’s oil is refined and shipped abroad. Prices extended gains after a U.S. Energy Department report showed that crude and fuel supplies fell last week.

“Prices are up on concern that the problems in Libya will escalate, taking the remainder of the country’s oil off the market, and spread elsewhere,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “As long as the revolt continues, you are going to see a substantial risk premium in the oil price.”

Crude oil for April delivery climbed $2.08, or 2.1 percent, to $101.71 a barrel at 12:06 p.m. on the New York Mercantile Exchange. Yesterday, the contract surged 2.7 percent to $99.63, the highest settlement since September 2008. Prices are up 28 percent from a year ago.

Gasoline for April delivery advanced 5.09 cents, or 1.7 percent, to $3.0343 a gallon in New York. Futures touched $3.0477, the highest price since Aug. 29, 2008.

Fighting in Libya may have shut as much as 1 million barrels a day of the North African country’s output, according to the International Energy Agency.

Spreading Unrest

Riots have toppled leaders in Tunisia and Egypt and there have been protests in Yemen, to the south of Saudi Arabia, the world’s biggest crude exporter. Websites have called for a nationwide Saudi “Day of Rage” on March 11 and March 20, according to Human Rights Watch.

Demonstrators clashed with security forces in Tehran yesterday. Iran’s Foreign Ministry said issues related to opposition figures in the country are “internal affairs,” without commenting on allegations by dissidents that authorities had detained the main opposition leaders Mehdi Karrubi and Mir- Hossein Mousavi.

Iran pumped 3.7 million barrels of oil a day in February, the second-biggest producer in the Organization of Petroleum Exporting Countries, according to Bloomberg News estimates.

In Oman, the largest Middle Eastern producer outside of OPEC, protesters blocked a highway linking the northern city of Sohar to the capital Muscat yesterday as the army set up checkpoints around Sohar and inspected vehicles. The country pumped 885,600 barrels of oil a day in January, according to data reported by the state-run Oman News Agency.

Saudi Offer

Saudi Arabian Oil Co.’s Chief Executive Officer Khalid Al- Falih this week said the kingdom is “ready to supply incremental change in demand,” to cover any shortfall from Libya. Saudi Arabia pumped 8.43 million barrels a day of oil in February, according to estimates compiled by Bloomberg.

The kingdom offered two European refiners additional cargoes of Arab Light crude for loading in March to make up for the loss of Libyan oil, two officials involved in the negotiations said.

Brent crude for April settlement increased $1.75, or 1.5 percent, to $117.17 a barrel on the London-based ICE Futures Europe exchange. Yesterday, it climbed $3.62, or 3.2 percent, to $115.42, the highest settlement since Aug. 27, 2008.

A U.S. Energy Department report today showed that nationwide crude inventories slipped 364,000 barrels to 346.4 million in the seven days ended Feb. 25, the first decline in seven weeks. A 750,000-barrel gain was projected, according to the median of 17 analyst estimates in a Bloomberg News survey.

Prime Movers

“Supply and demand issues in the U.S. aren’t the main drivers of the market right now,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “Headlines from the Middle East are what people are paying attention to and are the prime movers of prices right now.”

Supplies at Cushing, the delivery point for New York-traded West Texas Intermediate crude oil, surged 1.13 million barrels to 38.6 million, the highest level since at least 2004 when the department began tracking stockpiles at the hub.

Gasoline inventories tumbled 3.59 million barrels to 234.7 million last week, the biggest drop since October, the department said. Demand for the fuel rose 0.7 percent to 9.16 million barrels a day, the highest level since December.

Regular gasoline at the pump, averaged nationwide, rose 1.2 cents to $3.387 a gallon yesterday, the AAA said on its website. It was the highest level since Oct. 9, 2008.

“This was a very bullish report for gasoline,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. “Inventories are down and demand was up even though prices are rising. It’s pretty clear that we’ll be paying $4 a gallon at the pumps soon, probably by summer, or at the very least Labor Day.”

U.S. gasoline consumption peaks during the summer, when Americans take vacations. The driving season lasts from the Memorial Day weekend in late May to the Labor Day holiday in early September.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

via bloomberg.com