Gasoline Futures Sink 2.6%, Pulling Crude Oil Lower

A slump in gasoline futures pulled U.S. crude-oil futures lower Tuesday, as traders kept watch for signs of increasing refinery operations as plants look to churn out more fuel in coming weeks.

Light, sweet crude for April delivery settled 48 cents, or 0.5%, lower at $92.63 a barrel on the New York Mercantile Exchange, a fresh low for the year. Nymex-gasoline futures for March delivery settled 7.95 cents, or 2.6%, lower at $2.9816 a gallon, dropping below $3 a gallon for the first time since January.

Brent crude on the ICE futures exchange for April delivery traded $1.85 lower at $112.58 a barrel.

Gasoline and oil futures fell as traders looked ahead to increasing U.S. refining operations. The gasoline-producing unit at Motiva Enterprises LLC's massive 600,000-barrel-a-day Port Arthur, Texas, refinery was successfully restarted over the weekend, prompting many investors to anticipate further gains in refining capacity over the next few weeks.

Refineries typically shut some operations this time of year for seasonal maintenance, but analysts say more refiners closed down this year after delaying maintenance in earlier shutdown periods. That should translate to increasing gasoline supplies.

"We've just gone through an extraordinary turnaround period that is coming to an end. You are going to see a lot of plants returning to service," said Andy Lebow, an energy broker at Jefferies Bache in New York.

While increasing gasoline production means refiners would need to burn more crude, analysts and traders said that high domestic crude-oil supplies have tamped down any worries that oil stockpiles could be pressured. Instead, oil prices are following gasoline as a signal on fuel usage.

"Gasoline gave the energy complex a lot of support over the last several weeks, and it's leading the way down now," said John Kilduff, founding partner at Again Capital.

In data due Wednesday, the U.S. Energy Information Administration is expected to show crude-oil stockpiles rose 2.5 million barrels last week, according to a preliminary survey of analysts conducted by Dow Jones Newswires. Inventories are already at their highest level for this time of year based on EIA data beginning in 1982.

Gasoline stockpiles are seen falling by 700,000 barrels, while stocks of distillate, which include heating oil and diesel are seen falling 1.4 million barrels.

The American Petroleum Institute, an industry group, said in its own report late Tuesday oil stockpiles rose by 904,000 barrels. Gasoline stockpiles fell by 1.444 million barrels and stocks of distillate fell by 1.743 million barrels.

Refinery runs increased to 84.4% from 83.7% last week, the API said.

The decline in gasoline prices comes as oil traders continue to keep watch on the health of the broader economy, as well as nuclear talks in Iran that resumed Tuesday.

National elections in Italy haven't offered any group a clear majority in the country's senate, increasing the odds of political gridlock and complicating efforts to calm investors worried about Europe's debt crisis.

And in addition, a group of major powers is pushing Iran to commit to ending the most threatening element of its nuclear program involving the production of near weapons-grade fuel.

"It's very much a game of wait and see with these events, clarity on Italy, clarity on Iranian talks," said Matt Smith, commodity analyst at Schneider Electric.

March heating oil settled 2.2% lower at $3.0317 a gallon.

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


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Brent Crude Oil : $51.78/BBL 0.77%
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