Oil Surges After U.S. Crude Supplies Tumble the Most Since 1999


Oil jumped the most in almost five months after the biggest drawdown in U.S. crude inventories in 17 years.

Crude inventories fell 14.5 million barrels last week, the biggest drop since January 1999, according to the Energy Information Administration. A 905,000-barrel gain was projected by analysts surveyed by Bloomberg before the release. Tropical Storm Hermine moved into the Gulf of Mexico on Aug. 28, disrupting shipping and output before moving northeast. Imports tumbled 1.85 million barrels, while refinery activity increased.

“We had an enormous drop in imports, which explains the inventory number,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $5.2 billion. “Imports were off by almost 1.9 million barrels a day last week, which, when multiplied by seven, is pretty close to the size of the draw. I’m surprised the market is reacting as strongly as it is because there should be big build next week.”

Oil rallied in August partly on speculation that members of the Organization of Petroleum Exporting Countries and Russia would agree on measures to stabilize the market at a meeting this month. While Iran continues to keep investors guessing whether it will join a potential freeze accord, Saudi Arabia’s Energy Minister Khalid Al-Falih said Monday he’s optimistic producers will agree to cooperate. A falling dollar is also boosting the appeal of oil as an investment.

Storm Activity

West Texas Intermediate for October delivery rose $2.12, or 4.7 percent, to $47.62 a barrel on the New York Mercantile Exchange. It was the biggest gain since April 8, leaving prices at the highest close since since Aug. 26. Total volume traded was 38 percent above the 100-day average at 2:42 p.m.

Brent for November settlement climbed $2.01, or 4.2 percent, to $49.99 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $1.73 premium to WTI for November delivery.

For a story on four scenarios for nations attending the Algiers talks, click here.

“The huge number is clearly a result of storm activity in the Gulf,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s a fluke but, all the same, prices are going to move higher in the short term.”

Late Arrivals

Delayed cargoes may be arriving this week, leading to a big import increase in the next report, O’Grady said. There were about 30 oil tankers waiting to enter the Houston Ship Channel as of 10:20 a.m. local time, according to Patrick Seeba, operations director at Greater Houston Port Bureau.

U.S. crude supplies declined to 511.4 million in the week ended Sept. 2, according to EIA data. Inventories reached 543.4 million barrels in the week ended April 29, the highest since 1929. The stockpiles remain at their highest seasonal level in more than 20 years.

“One data point does not a make a trend,” said Mark Watkins, the Park City, Utah-based regional investment manager for The Private Client Group of U.S. Bank, which oversees $133 billion in assets. “We will have to see if this continues before getting too concerned.”

Record Inputs

Refineries increased operating rates by 0.9 percentage points to 93.7 percent of capacity, the highest since November. Plants usually begin to cut back on operations in August as the peak-demand driving season comes to an end.

Refinery inputs of crude, natural gas liquids and other fluids into distillation units rose 1.6 percent to 17.3 million barrels a day, the most in data going back to 1989.

Gasoline supplies dropped 4.21 million barrels to 227.8 million last week, the lowest since December. Imports dropped 27 percent to 607,000 barrels a day, the lowest since April. Demand for the  motor fuel rose 0.9 percent to 9.6 million barrels a day.

Stockpiles of distillate fuel, a category that includes diesel and heating oil, rose 3.38 million barrels to 158.1 million, the highest since April.

Gasoline futures for October delivery climbed 5.2 percent to $1.4165 a gallon, the biggest gain since May. October diesel rose 3.9 percent to $1.4822.

Oil-market news:

Iran is pumping 3.8 million barrels a day, Ghamsari said on Wednesday. The nation may continue boosting output beyond pre-sanctions levels. Iraq’s oil production will continue to grow, rising as much as 150,000 barrels a day every year in the near term, Falah Al-Amri, the head of Iraq’s Oil Marketing Co., said Thursday. Saudi Arabia told OPEC that its oil production dropped by 40,000 barrels a day in August to 10.63 million barrels, according a person with knowledge of the data, who asked not to be identified because the information hadn’t yet been made public.

By Mark Shenk.

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