Oil Is Little Changed After Touching Record on Drop in Supplies

Oil was little changed in New York after touching a record $112.21 a barrel yesterday following an unexpected decline in U.S. crude supplies.

The 3.1 million-barrel drop in crude-oil stockpiles reported by the Energy Department sent the price up as much as 3.4 percent yesterday. Gasoline futures jumped as much as 2.6 percent to their highest ever. At the pump, U.S. consumers are paying a record $3.343 a gallon, said the American Automobile Association, the nation's largest motorist organization.

This reaction to the DOE numbers suggests that the supply and demand fundamentals are still important, said Adam Sieminski, Deutsche Bank's chief energy economist in Washington. It's not just the speculators that are driving prices higher.

Oil's 80 percent gain during the past year is the second biggest among 19 commodities on the Reuters/Jefferies CRB Index, trailing only wheat, which doubled. Rising global demand for raw materials and a weakening dollar have led to records this year for raw materials including corn, soybeans, rice and gold.

Crude oil for May delivery fell 31 cents to $110.56 a barrel at 9:27 a.m. Sydney time in after-hours trading on the New York Mercantile Exchange. Yesterday, futures climbed $2.37, or 2.2 percent, to settle at $110.87 a barrel, a record close. The intraday peak of $112.21 a barrel was the highest since Nymex futures trading began in 1983.

Record Pump Prices

Gasoline for May delivery fell 0.13 cent to $2.7729 a gallon after climbing 2.38 cents, or 0.9 percent, to close at $2.7742 a gallon yesterday. Futures had reached $2.8228, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.2 cents to the record, AAA said yesterday on its Web site. Diesel prices advanced 1.2 cents to $4.032 a gallon, AAA said. Diesel pump prices reached a record $4.037 on March 22.

Rising fuel prices and cooling demand will produce first- quarter losses at five of the seven biggest U.S. airlines, based on Bloomberg surveys of analysts. Four of the nation's five biggest airlines, all except AMR Corp.'s American Airlines, have started charging some passengers $25 for a second checked bag to blunt rising fuel costs.

Inflation has also been a source of concern, with higher commodity prices and the weaker dollar, Federal Reserve Chairman Ben S. Bernanke told Congress's Joint Economic Committee on April 2.

Demand May Drop

At the same time, Bernanke said the Fed expects inflation to moderate in coming quarters, echoing the Federal Open Market Committee's March 18 statement. A leveling out of commodity prices and slower global growth will help, Bernanke said.

U.S. gasoline demand may drop by 85,000 barrels a day this summer, Guy Caruso, administrator of the Energy Information Administration, said April 7. In 1991, gasoline use fell 1.4 percent in the summer, following a nine-month recession during George H.W. Bush's presidency, Caruso said.

Refineries operated at 83 percent of capacity last week, down from 88.4 percent a year earlier, the Energy Department report showed. Refiners operated at 82.2 percent in the week ended March 21, the lowest since October 2005.

The report is supportive across the board, said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. I'm surprised gasoline isn't up more because of the larger-than-expected drop in inventories.

Fog Delays

Supplies of gasoline and distillate fuel, including heating oil and diesel, also fell. Gasoline inventories dropped 3.44 million barrels to 221.3 million last week, yesterday's report showed. A 3-million-barrel decline was expected.

Crude-oil imports fell 13 percent to 8.91 million barrels last week, the report showed.

Most of the drop occurred on the Gulf Coast, which could be a result of fog delays in the Houston Ship Channel or because refiners may have been purchasing less oil, Evans said.

Inventories on the Gulf of Mexico coast, known as PADD 3, fell 2.4 million barrels to 167.1 million barrels, the report showed, the biggest drop since the week ended Jan. 4.

Crude-oil supplies last week were 316 million barrels, 0.1 percent above the five-year average for the period, the department said. A week earlier stockpiles were 1.8 percent higher. Gasoline inventories were 7.9 percent above the five- year average, compared with 9.1 percent above a week earlier.

Heating Oil

Heating oil for May delivery rose 12.43 cents, or 4 percent, to settle at a record $3.2345 a gallon in New York yesterday. Futures touched an intraday record of $3.2561 a gallon.

Supplies of distillate fuel fell 3.7 million barrels to 106 million last week, the report showed. A 1.5 million barrel decline was forecast.

Brent crude for May settlement rose $2.13, or 2 percent, to settle at a record $108.47 a barrel on London's ICE Futures Europe exchange yesterday. Futures earlier reached the highest- ever intraday level of $109.50.

It looks like this move will accelerate and prices will move toward $115, said Tom Bentz, a broker at BNP Paribas in New York. This is all part of the big uptrend, and where it stops nobody knows.