Crude Ends Higher After Inventory Drop

Oil futures advanced Thursday after the U.S. government said oil stockpiles unexpectedly fell last week, while analysts warn that tighter fuel supplies could be on the way in the wake of Hurricane Sandy.

Light, sweet crude for December delivery settled 85 cents or 1% higher at $87.09 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled 53 cents or 0.5% lower at $108.17 a barrel.

The Energy Information Administration said U.S. oil inventories fell two million barrels last week. The figure bucked expectations for a decline of 1.7 million, according to a survey by Dow Jones Newswires.

"We've become so used to seeing builds coming through because of higher production," said Matt Smith, energy analyst at Schneider Electric. "It's just been these lower imports which has knocked things down."

The report is closely followed by the oil market because it offers cues on U.S. supply and demand. However, the survey period preceded Hurricane Sandy, which lashed the East Coast on Monday and Tuesday. Its impact on the energy market is likely to be widespread, but analysts warned that it could constrict fuel supplies on East Coast, already tight by historical levels.

Several refineries in the region announced closures due to the storm. The Phillips 66 refinery in Linden, N.J., was shut down temporarily due to a power outage, though the company said the facility was partially restarted by Thursday. Phillips 66 said power was restored to its Bayway, N.J., facility, but production hasn't restarted.

The shutdowns come as gasoline stockpiles on the East Coast are already relatively tight. The region has 47.9 million barrels in storage, down almost 9% from a year ago.

"All of these very legitimate supply concerns are out there," said Stephen Schork, editor of The Schork Report, an energy newsletter. Still, market watchers pointed out that the storm also likely curbed demand, as many employers closed down and others were left without power.

Oil imports last week dropped 10%, according to the EIA. The decline was partially offset by a modest rise in oil production, which has been rising steadily throughout the year due to booming output in the Midwest.

Gasoline inventories last week rose 900,000 barrels, according to the EIA. Stocks of distillates, including heating oil and diesel, fell 100,000 barrels. Refinery utilization rose 0.5 percentage point to 87.7% of capacity.

Gasoline stockpiles were seen rising 400,000 barrels, while stocks of distillates were projected to have fallen 1.1 million barrels. Refinery runs were seen steady at 87.2% of capacity.

Meanwhile, the U.S. Labor Department is scheduled on Friday to release its monthly nonfarm payrolls report for October. Oil-market participants follow the report, the most closely watched barometer of U.S. economic health, for cues on oil and gasoline demand.

A report from Automatic Data Processing Inc. showed 158,000 new private-sector jobs were created in October.

Front-month December reformulated gasoline blendstock, or RBOB, settled 0.33 cent or 0.1% higher at $2.6336 a gallon. December heating oil settled 2.91 cents or 1% lower at $3.0332 a gallon.