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Crude Down 1% as Inventory Surplus Widens

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Crude oil futures fell 1% on Thursday on concerns over a growing inventory surplus, which hit a three-year high last week.

Data from the Energy Information Administration show crude oil stocks rose 1.089 million barrels in the week ended Nov. 9, below expectations of a 2-million-barrel gain. But, at 375.9 million barrels, stocks are at their highest level since July 20 and are 11.5%, or nearly 39 million barrels, above the year-earlier level; and 13.4% above the five-year norm.

"There is no doubt there is plenty of crude," said Kyle Cooper, managing partner at IAF Energy Advisors in Houston. "There's no arguing that we at are very, very high levels."

Refinery crude runs fell in the week to a two-month low, while domestic production continued to climb, hitting a 6-1/2 year high above 6.7 million barrels a day on growing output from shale oil fields.

The lower refinery operations and higher inventories pushed the level of stocks relative to demand to its highest level in six months. Crude inventories now are sufficient to cover 25.7 days of refinery operations, compared with the year-earlier and five-year average of 23 days for this time of year. The last time the level of stock cover was this high, in early May, crude prices began a precipitous drop of more than 25%, from $106 a barrel to near $78 a barrel in late June.

For now, traders analysts said crude continued to test boundaries of its $84-$88 trading range so far this month.

Light, sweet crude oil for December delivery on the New York Mercantile Exchange fell 1%, or 87 cents, to $85.45 a barrel. Prices essentially gave back the gain made Wednesday on concerns of rising Middle East tensions after Israel killed a leader of Hamas in a rocket attack on Gaza. Traders said the market is watching the situation nervously, but so far there hasn't been any widening of the events, which would threaten crude oil supplies.

December Brent crude oil futures on the InterContinental Exchange rose 1.3%, or $1.37 a barrel, on the contract's last trading day, to expire at $110.98 a barrel, the highest level since Nov. 6. Brent was helped higher by news that Statoil had to close its Troll C platform in the North Sea due to a corrosion problem, cutting crude output by 120,000 barrels a day.

Brent's premium to U.S. crude climbed to a 13-month high of $25.53 a barrel, apparently rising on expiration-related trading. The incoming front-month January Brent, settled 47 cents lower at $108.01 a barrel. Based on the January Brent price, the premium to Nymex was $22.56 on Thursday, in line with the average spread so far this month.

The EIA data showed deliveries of gasoline and distillate fuel (diesel/heating oil) from primary storage rebounded last week after dropping to a 17-year low a week earlier on widespread disruption from Hurricane Sandy. Amid dramatic week on week gains, the four-week average figure shows demand continued to languish, hovering 2.2% below a year earlier, while the year-to-date figure through Nov. 9 is down 2.3%.

On the East Coast, where Sandy hit in late October, gasoline stocks were at their lowest level in more than four years last week, spurring gains in reformulated gasoline blendstocks amid weakness elsewhere.

December RBOB futures rose 1.72 cents a gallon to $2.6962 a gallon. December heating oil futures fell 1.47 cents to $2.9735 a gallon.

Copyright (c) 2012 Dow Jones & Company, Inc.

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