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Oil rises to four-month high as inventories unexpectedly drop

Jan. 16 (Bloomberg) -- Oil rose to the highest level in almost four months on an unexpected drop in U.S. inventories as imports declined and petroleum consumption increased.

Prices gained 1 percent after the Energy Information Administration, the Energy Department’s statistical arm, said stockpiles fell 951,000 barrels last week. A gain of 2.2 million was the median of 11 analyst estimates in a Bloomberg survey. Consumption rebounded from the lowest level since March.

“The drawdown in crude oil caught the market by surprise,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Supplies are becoming tighter than expected.”

West Texas Intermediate crude for February delivery climbed 96 cents to $94.24 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 18. Prices have risen 2.3 percent since the beginning of the year. Volume was 37 percent above the 100-day average.

Brent for February settlement, which expires today, gained 31 cents to $110.61 a barrel on the London-based ICE Futures Europe exchange. The more-active March contract added 5 cents to $109.68. Volume was 7.6 percent below the 100-day average.

The front-month European benchmark contract settled at a premium of $16.37 to WTI, the narrowest spread since Sept. 19.

Crude Stockpiles

Oil inventories decreased to 360.3 million in the seven days ended Jan. 11 as imports fell 3.7 percent to 8.03 million barrels a day, the EIA said in the weekly report. Imports jumped 18 percent the previous week, following a 12 percent drop in the week ended Dec. 28.

Companies in Gulf Coast states delay imports and minimize supplies at the end of the year to reduce local taxes. Those imports were brought ashore in the first week of the new year, Flynn said.

“Oil imports are the most volatile series” in the EIA report, said Tim Evans, an energy analyst at Citi Futures Perspective in New York. The drop in imports “resulted in a net decline in crude oil inventories.”

Total petroleum consumption rebounded from the lowest level since March, climbing 1.1 percent to 18 million barrels a day last week, the report showed. Gasoline demand jumped 3.9 percent to 8.32 million barrels a day.

U.S. Output

The EIA also reported that U.S. domestic production climbed to 7.04 million barrels a day, the highest level since January 1993. A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in states including North Dakota, Texas and Oklahoma.

Stocks at Cushing, Oklahoma, the delivery point for WTI futures, gained 1.78 million barrels to a record 51.9 million. Inventories may fall this week after the Seaway pipeline, which ships oil from Cushing to the Gulf Coast, resumed service on Jan. 11 at an increased capacity of 400,000 barrels a day from 150,000.

Gasoline stockpiles rose 1.91 million barrels to 235 million, the EIA said. Analysts had expected a gain of 2.7 million, according to the Bloomberg survey. Distillate fuels, which include heating oil and diesel, grew 1.67 million to 132.4 million barrels. They were forecast to increase 1.5 million.

“We are seeing momentum to the upside on the surprising drop in crude inventories,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “But it may be short-lived due to the build in gasoline and heating oil.”

Refinery Rates

Refineries operated at a rate of 87.9 percent, down from the previous week’s 89.1 percent, the EIA report showed.

Oil also gained as an al-Qaeda-linked group took an unknown number of foreign hostages after a pre-dawn attack on a gas facility in southern Algeria partly operated by BP Plc. U.S. citizens are among the hostages taken, said Victoria Nuland, a State Department spokeswoman.

“The hostage-taking in Algeria is worrying, even though it occurred at a gas facility,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “Something like this could occur at an isolated oil field and disrupt supply.”

Electronic trading volume on the Nymex was 617,414 contracts as of 3:33 p.m. Volume totaled 604,961 contracts yesterday, 25 percent above the three-month average. Open interest was 1.5 million, the most since Dec. 17.

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