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Oil Rises, Gasoline Surges to Record on U.S. Fuel-Supply Drop

Bloomberg: Oil Rises, Gasoline Surges to Record on U.S. Fuel-Supply Drop

By Mark Shenk

April 2 (Bloomberg) — Crude oil rose more than $3 a barrel and gasoline surged to a record after an Energy Department report showed that U.S. supplies of the motor fuel fell a third week.

Gasoline stockpiles declined 4.53 million barrels to 224.7 million barrels last week, the biggest drop since August, the report showed. The dollar fell against the euro for the first time in three days, bolstering the appeal of commodities as an inflation hedge.

“The robust supply cushion for gasoline appears to be vanishing before our eyes,” said John Kilduff, vice president of risk management at MF Global Ltd. in New York.

Crude oil for May delivery rose $3.85, or 3.8 percent, to settle at $104.83 a barrel at 2:46 p.m. on the New York Mercantile Exchange. Prices are up 59 percent from a year ago.

Gasoline for May delivery rose 13.44 cents, or 5.1 percent, to $2.7736 a gallon in New York, a record settlement price. Futures touched $2.7836, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

Pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 0.1 cent to a record $3.827 a gallon, AAA, the nation’s largest motorist organization, said today on its Web site.

Crude oil is often pulled higher by gasoline in the spring and summer when refiners bolster output of the fuel, increasing demand for the raw material.

U.S. Economy

The dollar fell after Federal Reserve Chairman Ben S. Bernanke said that the U.S. economy may contract in the first half of this year. Bernanke spoke to Congress’s Joint Economic Committee today.

Oil futures rose to a record $111.80 a barrel on March 17 in New York as investors purchased commodities in response to the plunging U.S. dollar. Gold, silver and platinum futures were also higher today.

“The surge in prices over the last month was not driven by any change in the oil-market fundamentals,” said Rachel Ziemba an analyst at RGE Monitor, an economic research company in New York. “The primary reason for the rise in prices was the flow of funds by investors looking for a safe haven in the face of the credit crisis.”

Gasoline inventories were forecast to decline 2.75 million barrels, according to the median of 15 responses in a Bloomberg News survey.

`Real Eye-Opener’

“The gasoline drop was a real eye-opener,” said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Supplies are falling when we aren’t even close to the driving season. We should be building stocks ahead of the driving season, not seeing them drop.”

U.S. gasoline demand increases during the summer, when Americans take to the highways for vacations. The peak- consumption period lasts from the Memorial Day weekend in late May to Labor Day in early September.

Refineries operated at 82.4 percent of capacity last week, up 0.2 percentage point from the week before, the report showed. Plants used 87 percent of capacity during the same week last year. Utilization dropped 1.7 percentage points in the week ended March 21 to 82.2 percent of capacity, the lowest since October 2005, the department said in last week’s report.

Lower refinery margins, or crack spreads, last month reduced the incentive of refiners to process oil into products, including gasoline and diesel fuel. The margin for making a barrel of crude oil into one of gasoline was negative on March 17 for the first time since February 2005, according to closing futures prices. The spread rose as high as $14.656 a barrel today.

`Cranking Up Output’

“Refiners started cranking up output and they should increase output further in the weeks ahead,” said Jim Ritterbusch, president of Galena, Illinois-based energy consulting firm Ritterbusch & Associates. “You are going to see refiners end their voluntary run cuts because cracks are going to improve.”

Valero Energy Corp., the largest U.S. refiner, said last week that output from its catalytic cracking units, the primary gasoline-making devices at its 15 U.S. refineries, has been reduced to 73 percent because of “uneconomic” margins.

Declines in gasoline inventories “will likely accelerate given the expected increase in seasonal gasoline demand,” MF Global’s Kilduff said. “Consumers need to maintain their vigilance in holding back on driving if they are going to have any chance in seeing lower prices soon.”

U.S. Demand

Total implied U.S. fuel demand averaged 20.3 million barrels a day in the past four weeks, down 1.3 percent from a year earlier, according to the department. Gasoline consumption averaged 9.2 million barrels a day over the period, unchanged from a year earlier.

Crude-oil supplies rose 7.32 million barrels to 319.2 million barrels last week, the report showed. It was the 11th gain in 12 weeks. Stockpiles were estimated to advance 2.3 million barrels, according to the analyst survey.

Brent crude for May settlement rose $3.58, or 3.6 percent, to settle at $103.75 a barrel on London’s ICE Futures Europe exchange. Futures reached a record $108.02 a barrel on March 14.

To contact the reporter on this story: Mark Shenk in New York at [email protected].

Last Updated: April 2, 2008 16:16 EDT 

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