US Crude Oil Futures Settle Down; Products Hit One-Month High

U.S. crude oil futures ended weaker but above the day's lows, while refined products futures hit one-month highs on hopes of a coming improvement in the economy of the world's biggest oil consumer.

Oil traders looked beyond the highest stocks of U.S. crude oil in 32 years, and the current sluggish growth in fuel consumption, to bid up prices late in the session. Analysts said the rally was spurred by the hope that strong indicators from the U.S. market would jump-start sputtering oil demand.

The Labor Department's count of new weekly claims for unemployment benefits came in lower than economists had forecast, while a widely watched indicator of layoffs fell to prerecession levels for the first time. The four-week average of benefits claims dropped to the lowest level since November 2007.

"There's a little bit more optimism there, but I think we have to see it play out a little longer," said Gene McGillian, broker and analyst at Tradition Energy.

Light, sweet crude oil for June delivery on the New York Mercantile Exchange settled down 23 cents, at $96.39 a barrel, but up more than $1 from the session low of $95.35.

June Brent crude oil on the InterContinental Exchange shed earlier losses to settle 13 cents higher, at $104.47 a barrel.

Brent's premium to the U.S. benchmark was $8.08 a barrel at the settlement, up from $7.72 a day earlier, which was the lowest level since Jan. 20, 2011.

Brent's premium to the U.S. benchmark has narrowed considerably as rapidly rising domestic crude oil output makes its way to the key Gulf Coast refining region, displacing imports of Brent and similar crudes.

Refiners are shipping oil from the midcontinent to the Gulf by truck and rail, as well as pipelines, chipping away at the supply surplus in landlocked Cushing, Okla. Oil inventories at the hub, which is the delivery point for the Nymex futures contract, have fallen by 2 million barrels in the past two weeks. The year-on-year surplus has dropped to 5 million barrels from nearly 24 million barrels in January.

As the regional bottleneck eases, the Brent premium has narrowed to near $8 a barrel, from $17 a barrel early this year.

Crude prices had been under pressure from government data showing stocks rose modestly last week to the highest level since April 1981. The Energy Information Administration also said in its weekly oil supply/demand report Thursday that demand for gasoline, the most widely used petroleum product in the nation, dropped by 400,000 barrels a day last week from the year-earlier level. The 4.7% drop was the biggest at the early May start of the driving season since 1994.

But traders said there is widespread hope that increasing refinining activity will reduce the deep inventories and that a pickup in the economy will boost demand for refined products, even as the EIA sees summer gasoline use slipping to a 12-year low in the peak spring-summer driving season.

In June, the EIA projects crude oil processing at refineries will average 15.6 million barrels, up about 440,000 barrels a day above current levels, and crude stocks will fall by about 12 million barrels by the end of June, to just below year-earlier levels. Stocks are now above the year-earlier level by 16 million barrels, or 4.2%.

Tim Evans, analyst at Citi Futures, warned that these expectations make for "a weak bullish arguement" because if fuel demand doesn't improve, the problem of high crude oil stocks is simply shifted in the refined products market.

June heating oil futures settled 2.19 cents higher, at $2.9366 a gallon, the highest level since April 10.

Reformulated gasoline blendstock futures for June delivery settled at the highest level since April 9, gaining 3.13 cents, to $2.8851 a gallon.

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Oil Sands, Refined Products, and Exports: Just the Facts

U.S. Crude Oil Stays in the United States. According to the U.S. Energy Information Administration (EIA), in 2011, 99.7 percent of the crude oil produced in (or imported into) the United States was also consumed here, which means less than one-half of one percent (0.3 percent) was exported. Simply put, the United States does not export crude oil in any significant way.

The United States Exports Very Little Gasoline. Of the total on-road fuel produced in the United States in 2011, 92 percent of it was refined and consumed in the United States; only eight percent was exported. And of all the petroleum products that the United States does export, finished motor gasoline only represents about 21 percent. The majority of exported products (79 percent) are things like propane, ethanol, heating oil, and kerosene, which are produced in amounts in excess of U.S. demand.

   

What the United States Is Exporting Is Going to Mexico, which Benefits the United States. Of the gasoline that is exported, 60 percent goes to Mexico, from which the United States imports crude oil. This exchange benefits the United States: Gasoline is worth more than oil, so we’re purchasing a good and then selling back a more expensive good, not only creating a net value-add for the U.S. economy, but also creating manufacturing jobs and generating tax revenue.

The Oil Sands Would Replace Declining Supplies. According to the EIA, increased imports from the Canadian oil sands would likely replace heavy crude imports from Mexico, Venezuela, and Ecuador. Heavy oil imports from those three countries are about 900,000 barrels per day less than what they were in 2005, and they are projected to decline by an additional 540,000 barrels per day by 2020 and 845,000 barrels per day by 2035.

No Reason to Export Heavy Oil. The U.S. Department of Energy (DOE), in reviewing the Keystone XL project, concluded that “there would be no economic incentive to ship Canadian oil sands [crude] to Asia via Port Arthur” without a surplus of heavy oil. And since heavy oil imports are declining (DOE noted that heavy oil imports “are likely to decrease by a significant amount within the next five years”), oil sands crude from Canada would be filling a gap, not creating excess supply.

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