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Crude-Oil Futures Shrug Off Bearish Inventory Data to End Near Flat

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Crude-oil futures prices shrugged off news of weak demand and rising inventories Wednesday, settling little changed near the highest level since September.

Analysts said market participants put aside bearish end-year supply-demand data that had sent prices modestly lower and late buying interest emerged as U.S. equities recovered much of the day-earlier losses.

"We're seeing a shrugging-off of the bearish data and some support from equities," said Gene McGillian, broker and analyst at Tradition Energy.

"We've got more than ample supply of oil...and demand is dropping, but there's no fresh selling interest," he said, adding prices remain stuck near $93 a barrel, not far from the highest level since mid-September.

Light, sweet crude oil futures for February delivery on the New York Mercantile Exchange settled five cents lower at $93.10 a barrel after moving in a range of $92.68 to $93.65. ICE North Sea Brent crude oil settled 18 cents lower at $111.76 a barrel.

Gasoline futures were the biggest decliner in the energy futures complex, while heating oil gained modestly as inventories in the key Northeast demand region dropped, despite a large nationwide rise.

Data from the Energy Information Administration showed U.S. implied oil demand fell 6% last week to an 11-month low of 17.755 million barrels a day, triggering a jump in inventories of gasoline and distillate fuel (diesel/heating oil).

But traders said year-end data around the Christmas and New Year's holidays often is subject to broad swings due to refiners' moves to limit their inventory holdings in order to lower their tax exposure and due to shutdowns of facilities during the holidays, which limit deliveries of fuel.

EIA doesn't directly measure demand, but tracks deliveries of gasoline, heating oil and other petroleum products out of primary storage facilities such as refineries, as a proxy for demand.

"There is always end-of-year volatility around the numbers," said Andrew Lebow, analyst at Jefferies Bache. "But this report is bearish by whatever measure."

Crude oil stocks at Cushing, Okla., the delivery point for the benchmark U.S. crude-oil futures contract, rose 0.7% in the week, to a record high, topping 50 million barrels. Stocks are more than 72% ahead of a year earlier, keeping pressure on prices.

A drop in implied gasoline demand of 6% in the week, to a one-year low of eight million barrels a day, helped push up gasoline stocks by a sharp 7.4 million barrels nationwide in the week, EIA data show. Gasoline stocks have gained more than 16% in the past seven weeks, and, at 233 million barrels they stand at the highest level since February 2011.

The ratio of gasoline stocks to demand is at the highest level in nearly 14 years, EIA data show. Nationwide gasoline stocks now cover more than 29 days of current demand, compared with a five-year average of 24.8 days for this time of year. In the Northeast U.S., where stocks were stretched thin during Hurricane Sandy, inventories are 12.8% below the five-year average level.

The EIA said Tuesday U.S. gasoline demand fell to an 11-year low in 2012 of 8.73 million barrels a day. Demand is expected to flatline at that level through 2014 as higher vehicle fuel efficiency and other factors put the brakes on growth in consumption.

Implied demand for distillate fuel fell 5.2% in the latest week to 3.086 million barrels a day, the lowest level since July 2009.

The drop allowed distillate stocks to rise by 6.8 million barrels, well beyond the expected 1.4-million-barrel rise. Stocks of distillate fuel (heating oil/diesel) are now sufficient to cover 42.4 days of demand, a 10-month high.

Despite the nationwide rise, stocks in the major heating oil market in the central Atlantic states dropped, and Northeast U.S. inventories are more than 30% below a year earlier. That decline helped underpin prices for heating oil futures for delivery in the New York harbor region.

February-delivery heating oil rose 1.14 cents, or 0.4%, to $3.0699 a gallon, the highest price since Dec. 27.

Reformulated gasoline blendstock futures for February delivery settled 1.55 cents, or 0.6%, lower, at $2.7789 a gallon.

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

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