Oil Trades Little Changed After Rising on U.S. Supply Decline

Crude oil was little changed in New York after rising yesterday on speculation increased U.S. fuel output will draw down the nation's above-average oil stockpiles.

Oil supplies dropped 6.5 million barrels last week, the biggest decline this year, as the nation's refiners increased operating rates to a 13-month high, the U.S. Energy Department said Aug. 1. Oil fell after reaching a record $78.77 following the report, which showed stockpiles remained 12 percent higher than the five-year average for the period.

``The industry is bearish at $78, but Wall Street is bullish,'' said Chris Mennis, owner of oil broker New Wave Energy LLC in Aptos, California. ``We could get more crude draws and I think that's what the traders are all about right now.''

Crude oil for September delivery was at $76.83 a barrel, down 3 cents, in after-hours electronic trading on the New York Mercantile Exchange at 9:32 a.m. in Singapore.

The contract rose 33 cents, or 0.4 percent, to $76.86 yesterday, after falling 2.2 percent the day before. It traded as low as $75.52 yesterday.

``It seems they want to test $80,'' Justin Fohsz, a broker at Starsupply Petroleum, a division of GFI Group Inc., in Englewood, New Jersey, said yesterday. ``Supplies at Cushing are getting tighter, which is supportive, but I don't think it justifies prices at these levels.''

Stockpiles at Cushing, Oklahoma, the delivery point for New York-traded West Texas Intermediate oil, fell 492,000 barrels to 20.7 million last week, the report showed. Supplies there are the lowest since the week ended Dec. 2, 2005, and have fallen for 10 weeks.

Brent Discount

Falling stocks at Cushing helped restore West Texas Intermediate prices to a premium over the Brent product last week. Abundant U.S. supplies had kept the Nymex futures at a discount for five months.

``The global tightness in crude-oil supplies is finally spreading to the U.S.,'' Antoine Halff, a vice president and head of energy research at Fimat USA Inc. in New York, said yesterday. ``We are set for further draws in the weeks ahead.''

Brent crude oil was at $75.62 a barrel, down 14 cents, on the London-based ICE Futures exchange at 9:08 a.m. Singapore time. It rose 0.5 percent to $75.76 yesterday, narrowing its discount to Nymex to $1.10.

U.S. refiners used 93.6 percent of their plant capacity last week and produced a record 9.43 million barrels of gasoline a day.

``There's not that much more that refinery runs can increase,'' said New Wave's Mennis. ``I'm leaning toward becoming bearish. I've been bearish products for a while and I'm respectful of crude.''

Gasoline, Outlook

Gasoline for September delivery was $2.0372 a gallon after rising 0.3 percent to $2.0362 yesterday. Futures have fallen 17 percent from a peak of $2.4550 on April 30.

Oil and gasoline plunged last August after the peak of the U.S. summer driving season and tensions in the Middle East eased.

While the prospect of further United Nations sanctions against Iran's nuclear research may slow oil's decline, other indicators point to further weakness, New Wave's Mennis said.

Shares in oil companies have been sold off, while the backwardated futures market may also be encouraging industrial players to sell-down physical stockpiles.

Commodity markets frequently trade in contango, where prompt contracts trade at a discount to later months, reflecting the cost of holding stockpiles for later deliveries. September crude has traded at a premium to December since July 13.

``Oil companies can liquidate inventories now because they can buy it back cheaper in the future,'' said Mennis, who is advising clients to buy options to sell oil at $75.

source:bloomberg.com