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The Wall Street Journal: Oil Futures, After Falling, Rebound As Valero Refinery Is Able to Restart

Wall Street Journal Chart

April 17, 2007; Page C2

Near-term crude futures rebounded from an early decline and ended largely unchanged, strengthening relative to longer-term contracts, as a major U.S. oil refinery restarted.

The May crude contract on the New York Mercantile Exchange settled at $63.61 a barrel, down two cents, after falling as low as $62.55 a barrel.

Valero Energy Corp. said it had begun partial operations at its fire-damaged McKee refinery in Sunray, Texas. The outage had cut demand for crude, lifting inventories to record levels and causing May crude futures to trade at a discount of more than $3 to the June contract and more than $7 a barrel to North Sea Brent.
With McKee’s restart expected to lift demand, traders closed bets those price differences would widen. As a result, the spread between crude futures for May and June delivery narrowed to less than $1.80 a barrel at one point Monday from $2.70 Friday.

“The May WTI got pounded so far relative to everything else that now, within a week of expiration, you’re seeing a lot of spread unwinding,” said Jim Ritterbusch, president of consulting firm Ritterbusch & Associates in Galena, Ill. The May crude-oil contract expires Friday.

May reformulated-gasoline blendstock futures fell 6.40 cents, or 2.9%, to $2.1157 a gallon, posting their biggest daily decline in dollar terms since Jan. 3.

“A lot of people see the restart of McKee as a sign that we’ll have enough refining capacity to meet demand this summer,” said Peter Beutel, an analyst at trading advisory firm Cameron Hanover in New Canaan, Conn.

Also pressing petroleum was the expectation that supplies of Nigerian crude would rise in coming months. Nigerian joint venture Shell Petroleum Development Co. was expected to restore production of Forcados crude to normal levels by mid-June after more than a year of civil unrest, West African crude traders said.

In other commodity markets:

GOLD: Prices rose, supported by a softer dollar and physical buying. Nearby April rose $4.70 an ounce to $690.10, while most-active June gold gained $4.60 to $694.50 on the Comex division of Nymex.

NATURAL GAS: Futures extended losses for the second session on expectations warmer weather in the Northeast and Midwest would cut demand. The May contract settled 27.1 cents lower at $7.53 a million British thermal units.

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