Crude Oil Rises as U.S. Refinery Operations Fall to 4-Month Low

Crude oil rose above $52 a barrel in New York after a government report showed that U.S. refineries operated at the lowest rate since October.

Bloomberg.com
Crude oil rose above $52 a barrel in New York after a government report showed that U.S. refineries operated at the lowest rate since October.

Refineries used 89.3 percent of their capacity in the week ended Feb. 25, the lowest since October when companies were performing repairs after a hurricane hit the Gulf of Mexico, the Energy Department report showed. Supplies gained 2.4 million barrels to 299.4 million, the highest since July. The median forecast of 12 analysts was for a rise of 1 million barrels.

“The refineries have been going at high rates all winter in order to make heating oil,” said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago. “They have to perform maintenance that has been put off and we can expect to see more of this in coming weeks.”

Crude oil for April delivery gained 62 cents, or 1.2 percent, to $52.30 a barrel at 1:20 p.m. on the New York Mercantile Exchange. Prices touched $52.50, the highest since Nov. 1 when futures also reached that level. Prices are up 43 percent from a year ago.

In London, the April Brent crude-oil futures contract rose 49 cents, or 1 percent, to $50.60 a barrel on the International Petroleum Exchange. Futures touched $50.80, the highest intraday price since Oct. 27.

The Energy Department released its weekly report on petroleum inventories at 10:30 a.m. in Washington.

Gasoline stockpiles rose 973,000 barrels to 224.5 million, the report showed. Analysts surveyed by Bloomberg expected an increase of 1.1 million barrels.

Inventories of distillate fuel, a category that includes heating oil and diesel, fell 1.7 million barrels to 110 million, the report showed. Analysts surveyed by Bloomberg expected a 1.2 million barrel decline.

`Right on the Money’

“The crude number was slightly bigger than expected while the gasoline and distillate numbers were right on the money,” said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. “The most important thing about the numbers is that they are out of the way, which is allowing the funds to come in and buy crude with both hands.”

Speculators, including investment funds, last week had their biggest bet on higher oil prices in eight months, according to the Commodity Futures Trading Commission. So-called net-longs in New York soared by 22,548 contracts to 54,176 in the week ended Feb. 22, the commission reported. The net-long positions peaked at 82,451 contracts in March 2004.

Prearranged agreements to buy or sell futures, known as stops, may be clustered at $52.50 a barrel.

Increased fund buying may boost commodity prices, Kevin Norrish, head of commodities research at Barclays Capital in London, said in a report yesterday. Funds are reaping the higher returns of investing in commodities. The Reuters-CRB index rose 11 percent last year compared with 9 percent for the Standard & Poor’s 500 Index. Oil in New York gained 34 percent last year.

`Aim at $60′

“There is a lot of resistance at $52.50,” Silliere said. “There are a lot of stops that will be triggered if we can pass that number. Then we will be looking at the record $55.67 and the funds will then aim at $60.”

Oil surged to a record $55.67 a barrel in New York on Oct. 25 because of high global demand, particularly from China, and the threat of disruptions to oil shipments from Iraq, Russia and Nigeria.

“Oil prices will likely stay in the $40- to $50-per-barrel range and may have to move higher still to restrain demand,” said James Buckee, chief executive of Calgary-based Talisman Energy Inc. The company produces oil and gas in North America, Asia, the U.K. and Middle East.

OPEC and Inventories

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, is concerned that rising inventories will lead to a decline in prices during the second quarter of the year. OPEC will discuss production targets at a meeting in Isfahan, Iran, on March 16.

The 11-member group’s president, Sheikh Ahmad Fahd al-Ahmad al-Sabah, who is also the Kuwaiti oil minister, said in January OPEC may be willing to let global inventories get large enough to cover 56 days of demand before it cuts supplies. Al-Sabah said inventories covered 52 days of demand on Jan. 30.

“The higher-than-expected gain in crude oil inventories ensures that OPEC won’t be increasing production when they meet,” Flynn said.

Refinery Disruptions

A spate of unexpected refinery disruptions has helped bolster gasoline prices. Lyondell-Citgo Refining LP, a joint venture between Lyondell Chemical Co. and Citgo Petroleum Corp., shut a unit at its Houston crude-oil refinery yesterday, state regulators said.

Lyondell Chemical spokesman David Harpole declined to comment on the report or the refinery’s operations. The refinery can process 265,000 barrels of crude oil a day.

A fire on Feb. 26 at BP Plc’s Whiting, Indiana, refinery didn’t reduce crude-oil processing or fuel production at the company’s second-largest plant, a spokesman said. The 116-year- old refinery can process 420,000 barrels of oil a day.

Gasoline for April delivery rose 6.03 cents, or 4.3 percent, to $1.463 a gallon in New York. Prices are 28 percent higher than a year ago.