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Oil Advances as Inventories Slip, Demand Increases

19 Dec 2012

Oil gained for a fourth day after the Energy Department said inventories decreased to a two-month low as refineries ramped up operations, increasing demand.

Prices gained as stockpiles fell to 371.6 million barrels, the least since Oct. 12, and refineries ran at the highest rate since August. Petroleum consumption rose to the second-highest level this year and demand for distillate fuels increased to the most in 2012.

“Crude oil runs are strong and that’s bullish,” saidStephen Schork, president of the Schork Group Inc. in Villanova,Pennsylvania. “Crude demand is higher due to the refinery runs. The product markets are very strong.”

Crude oil for January delivery rose $1.27, or 1.4 percent, to $89.20 a barrel at 11:44 a.m. on the New York Mercantile Exchange. Oil traded at $88.40 before release of the inventory report at 10:30 a.m. The February contract rose $1.25, or 1.4 percent, to $89.65.

Brent for February added $1.04, or 1 percent, to $109.88 a barrel on the London-based ICE Futures Europe exchange. Brent’s premium to February WTI narrowed 21 cents to $20.23 a barrel.

WTI has declined 9.7 percent in 2012 as the U.S. shale boom deepened the glut at Cushing, America’s biggest storage hub. That has left it at an average $17.41 below Brent this year, compared with a premium of about 95 cents in the 10 years through 2010. Brent, the benchmark grade for more than half the world’s crude, has risen 2.3 percent this year.

Refinery Rates

The decline of 964,000 barrels in crude supplies was less than the forecast decrease of 1.75 million, according to the median of 11 analyst estimates in a Bloomberg survey. Refineries operated at a 91.5 percent rate, up 1.1 percentage points from the previous week and the most since Aug. 10.

“The 91 percent utilization rate leads to stronger demand for crude oil,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “There is some concern about further destocking for those crude inventories into the end of the year.”

Oil stockpiles have dropped during December in the past six years, Energy Department data show. Companies in Texas can be taxed on the value of stored crude as part of local property taxes, R.J. DeSilva, an Austin-based spokesman for the Texas Comptroller of Public Accounts, said in an e-mail.

The Energy Department also said inventories of distillatesdropped 1.09 million barrels to 117 million. They were forecast to rise 1 million. Gasoline supplies gained 2.21 million barrels to 219.3 million, more than the 2 million increase expected by analysts.

Total Demand

Total consumption of fuels jumped 1.13 million barrels a day, or 6 percent, to 20 million, the most since Aug. 10. Distillate demand surged 20 percent to 4.21 million barrels a day, the most since Dec. 16, 2011.

“The report is bullish for the market,” said Bill Baruch, a senior market strategist at in Chicago. “Demand is stronger, especially distillates, and oil is building its momentum.”

Oil also gained amid speculation that U.S. lawmakers will agree on steps to avert a fiscal crisis and as German business confidence increased for a second month in December.

“There is a more optimistic tone in the budget talks,”said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “It won’t surprise me to see oil move up to the $90 area.”