WTI Crude Climbs to One-Month High as Supplies, Imports Tumble

May 21, 2014 3:37 pm ET

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May 21 (Bloomberg) -- West Texas Intermediate crude rose to a one-month high after a government report showed U.S. supplies tumbled last week as imports dropped to a 17-year low.

Futures advanced 1.7 percent in New York. Crude stockpiles decreased 7.23 million barrels to 391.3 million in the seven days ended May 16, according to the Energy Information Administration. Analysts surveyed by Bloomberg projected no change in inventories. Crude imports fell 9.2 percent as U.S. output climbed to a 28-year high.

“The market is reacting to a surprising draw,” Adam Wise, who helps run a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston, said by phone. “Imports dropped a great deal, which shows that the global market is reacting to changes in the domestic supply situation.”

WTI for July delivery increased $1.74 to $104.07 a barrel on the New York Mercantile Exchange, the highest settlement since April 21 and the biggest gain since April 8. The volume of all futures traded was 19 percent above the 100-day average at 3:36 p.m. Futures are up 5.7 percent this year.

Brent for July settlement gained 86 cents, or 0.8 percent, to end the session at $110.55 a barrel on the London-based ICE Futures Europe exchange. Volume was 9.6 percent higher than the 100-day average. The European benchmark crude closed at a $6.48 premium to WTI.

Crude Supplies

Nationwide supplies have fallen in two of the three weeks since reaching 399.4 million barrels April 25, the most since the EIA began publishing weekly data in 1982.

“I find $104 WTI a bit preposterous given how ample supplies are but I wouldn’t recommend standing in the way of this,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “There’s still ample crude.”

Stockpiles at Cushing, Oklahoma, the delivery point for WTI, dropped by 225,000 barrels to 23.2 million, the least since December 2008. Inventories have decreased since the southern leg of the Keystone XL pipeline began moving oil to Gulf Coast refineries from storage in January.

Crude imports slid 658,000 barrels a day last week to 6.47 million, the fewest since 1997, according to the EIA, the Energy Department’s statistical arm.

“This was a strongly bullish report,” Michael Lynch, the president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. “Imports were very low, and we’ll be waiting to see if next week’s report shows that a couple of tankers were delayed.”

U.S. Production

U.S. crude production rose 6,000 barrels a day to 8.43 million, the most since October 1986, the EIA said. Output has surged this year as a combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations, including the Bakken in North Dakota and the Eagle Ford in Texas.

Refineries operated at 88.7 percent of capacity in the seven days ended May 16, down 0.1 percentage point from the prior week.

Gasoline stockpiles gained 970,000 barrels to 213.4 million, according to the EIA. Consumption of the fuel climbed 2.1 percent to 8.94 million barrels a day averaged over the last four weeks. That’s the most since November and 5.2 percent higher than a year earlier. Demand peaks between the Memorial Day holiday late this month and Labor Day in early September, when Americans traditionally take vacations.

“Gasoline demand was very strong, which presages very high consumption during the summer driving season,” Lynch said.

Brent Advances

Brent gained as the U.S. moved a Marine contingent to Italy yesterday to prepare for the possible evacuation of American personnel from Libya. The North African country pumped 215,000 barrels a day in April, down 84 percent from a year earlier, according to Bloomberg data.

Brent will average $109 a barrel this year, up from an earlier projection of $104, after tension between Ukraine and Russia introduced a “completely unexpected source of geopolitical risk,” according to Seth Kleinman, a Citigroup Inc. analyst in London.

Russia’s Prime Minister Dmitry Medvedev warned the U.S. and its allies that they risk provoking a new Cold War as Ukraine said it hasn’t seen signs of a pullback of Russian troops along its border. Russia is the world’s second-largest net oil exporter, the EIA said.