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Crude-oil futures prices settled higher Wednesday, fueled by higher refinery processing rates and despite concerns over signs of weak gasoline demand ahead of the peak driving season.
Traders cautioned that a series of factors make the rally, which follows a steep selloff a day earlier, less meaningful that it seems on its face.
The late surge in the front-month April contract on the New York Mercantile Exchange came ahead of its expiration and likely was steered by investors making last minute adjustments. The contract went off the board at the lowest expiration day price for crude since December.
The Energy Information Administration reported U.S. crude oil stocks fell by 1.3 million barrels last week, while analysts expected a 1.7 million barrel rise. The surprise decline followed nine straight weeks of increases that plumped up inventories by 24 million barrels. Even with the decline, the surplus of crude to its five-year norms widened to a two-month high of 12%. Analysts also noted most of the drop in crude stocks occurred on the isolated West Coast, which isn't reflective of the national trend.
EIA said crude oil runs rose 520,000 barrels a day, to 14.5 million barrels a day, which is supportive for the market. But the large gain came from the week-earlier level that was the lowest in two years.
"The data was actually bearish," said Gene McGillian, broker and analyst at Tradition Energy. "We saw a draw in crude, but we also saw weak demand for gasoline" heading into the start of the spring-summer driving season.
Mr. McGillian said the main impetus for gains in oil futures was the fact fears receded over the fiscal crisis in Cyprus and how steps to address it could ripple through struggling European economies. "We've still got 380 million barrel of crude and that's a lot of oil in storage," he said. "We're not being driven higher by tight supplies at all."
Nymex April-delivery light, sweet crude oil expired 80 cents higher, at $92.96 a barrel after a late session high of $93.30 a barrel. May crude oil settled 98 cents higher, at $93.50 a barrel.
ICE North Sea Brent crude oil for May settled $1.27 higher, at $108.72 a barrel, after settling Tuesday at the lowest level since Dec. 10.
Stocks at Cushing, Okla., the delivery point for the Nymex crude oil contract, dropped by 286,000 barrels in the week to their lowest level in three months, but analysts noted inventories remain close to record highs.
"It's a little too early to say we're seeing the start of the drawdowns at Cushing," said Andy Lebow, senior vice president for energy futures at Jefferies Bache. Cushing inventories are 5.5% below the record high hit in early January, but 27%, or 10.5 million barrels, above the year-earlier level. That's the smallest year-on-year surplus since Aug. 3, 2012.
The EIA data showed implied U.S. oil demand averaged 17.765 million barrels a day, down 4.5%, or 832,000 barrels a day, from a week earlier, and the lowest since Jan. 4. Demand for gasoline, the most widely used petroleum product in the nation, fell 303,000 barrels a day in the week, to a two-month low of 8.324 million barrels a day. EIA said gasoline stocks fell 1.476 million barrels, against expectations of a 2-million barrel drop last week. Traders noted a sharp drop in imports, but James Beck, the EIA official in charge of the weekly report, said the drop was likely due to typical week-to-week swings in ship arrivals rather than a trend toward lower imports.
Goldman Sachs analysts said in a note pressures on European refinery margins will likely mean they will be pushing out more gasoline for export to the U.S. in the near term.
Reformulated gasoline blendstock futures for April rebounded sharply late in the session, but traders said the move likely reflected bargain buying after Tuesday's steep selloff.
April-delivery RBOB gasoline settled 7.12 cents higher, at $3.1163 a gallon.
April heating oil settled 2.80 cents higher, at $2.8943 a gallon. EIA said distillate stocks (heating oil/diesel) fell 672,000 barrels, near the expected 900,000-barrel drop.
Copyright (c) 2012 Dow Jones & Company, Inc.
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