Nymex Crude Soars After Inventories Slump

NEW YORK Oct. 24, 2007 (Dow Jones Newswire)

Crude oil futures shot higher Wednesday, breaking a run of three straight falls after weekly Department of Energy inventory data showed unexpected falls in U.S. crude oil, gasoline and distillate inventories.

The front-month December light, sweet crude contract on the New York Mercantile Exchange settled $1.83 higher, or 2.2%, at $87.10 a barrel. Brent crude on the ICE futures exchange rose $1.57 to $84.42 a barrel.

Crude oil stockpiles slumped 5.3 million barrels to 316.6 million barrels last week, the DOE's Energy Information Administration said. That compared with forecasts for a 300,000-barrel increase in a Dow Jones Newswires survey of analysts, and is the lowest level since January.

Gasoline stockpiles fell by 2 million barrels to 193.8 million barrels, after expectations for a 1.1 million-barrel build. Distillates, which include heating oil and diesel fuel, fell 1.8 million barrels, versus expectations for a 200,000-barrel increase. Refinery use also unexpectedly fell, albeit slightly, dropping by 0.2 percentage point to 87.1% of capacity. Analysts had expected a 0.3 percentage- point gain.

"I don't think anybody expected such a big draw in crude stocks - there's nothing bearish about this report," said Tony Rosado of IAG Energy Brokers in Fort Lauderdale, Fla. "Draws in all energy sectors caused a $2 push to the upside" from the $85-a-barrel level prices were at before the data was released.

After trading as low as $84.68 a barrel before the inventory report, prices are now just $3 a barrel from their intraday record high of $90.07 a barrel, set Friday. Crude oil made the highs amid forecasts for a big gap between global oil supply and demand in the fourth quarter, a weaker dollar and Turkish threats to attack Kurdish rebels in northern Iraq.

"For the previous three sessions we were determined to correct from the highs and ignoring some bullish developments, like a weaker U.S. dollar and the problems between Turkey and the Kurds in Iraq," said Peter Donovan, vice president at brokerage Vantage Trading on the Nymex floor. "But these inventory numbers really caught the market by surprise."

Donovan said the jury is still out, however, on whether prices will make new highs. While Turkish incursions into northern Iraq are seen as bullish because they threaten the stability of oil pipelines in the region, and a weaker dollar makes crude oil cheaper for traders using other currencies, concerns about slowing U.S. growth and more OPEC supply can weigh on prices.

"It appears the market is really wrestling with some conflicting scenarios," he said.

Conflict between Turkey and the Kurdistan Workers' Party, or PKK, continued, with Turkish war planes and helicopter gunships bombing positions of Kurdish rebels along the Iraq-Turkey border, according to Turkey's official Anatolia news agency.

The price-supportive draw in crude stockpiles outweighed a fall in U.S. equities, with the Dow Jones Industrial Average recently down 0.7%, and prospects for more Organization of Petroleum Exporting Countries crude oil.

An OPEC delegate said some members, including the cartel's de facto leader Saudi Arabia, could push for a second 500,000 barrel-a-day output rise at a meeting in November. The rise would be in addition to a 500,000 barrel-a-day output rise due to start Nov. 1, which was agreed to in September.

Another potential drag on prices was a 9.8% drop in Japanese crude oil and condensate imports for September, compared to a year earlier, reported by the country's Ministry of Finance. A drop in refined product demand erased an increase in crude oil demand for thermal power plants since the closure of the earthquake-hit Kashiwazaki nuclear power plant in mid-July.

The steady fall in demand has been attributed to shifts to relatively cheaper, cleaner-burning natural gas by manufacturers and large retailers for their in-house power generation and boilers.

In forecasts by OPEC, the International Energy Agency and the DOE, Japanese winter demand plays a big part in fourth-quarter projections.

Front-month November reformulated gasoline blendstock, or RBOB, rose 3.86 cents, or 1.8%, to $2.1475 a gallon. November heating oil rose 4.22 cents, or 1.8%, to $2.3420 a gallon.

Copyright (c) 2007 Dow Jones & Company, Inc.