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WTI Oil Gains as Cushing Supply Drops; Discount to Brent Narrows

May 7 (Bloomberg) -- West Texas Intermediate rose after crude supplies at Cushing, Oklahoma, the delivery point for the contract, dropped to the lowest level in more than five years. WTI’s discount to Brent, the European benchmark oil, shrank.

Futures climbed as much as 1.5 percent in New York. Cushing stockpiles fell 1.4 million barrels to 24 million last week, the least since November 2008, the U.S. Energy Information Administration said. Nationwide stockpiles unexpectedly slipped 1.78 million barrels last week. Total fuel demand averaged over four weeks increased to the highest level since March.

“WTI is getting strength from the decline at Cushing, which could change the market structure,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “We’re seeing strong demand from consumers. Refinery demand should increase as they boost fuel output.”

WTI for June delivery increased $1.19, or 1.2 percent, to $100.69 a barrel at 11:19 a.m. on the New York Mercantile Exchange. The contract traded at $100.13 before the release of the report at 10:30 a.m. in Washington. The volume of all futures traded was 30 percent above the 100-day average.

Brent for June settlement rose 37 cents, or 0.4 percent, to $107.43 a barrel on the London-based ICE Futures Europe exchange. Volume was 49 percent higher than the 100-day average.

The European benchmark crude traded at a $6.74 premium to WTI. The spread narrowed to $7.56 at yesterday’s close, the least since April 28.

Supplies Shrink

The decrease left nationwide U.S. stockpiles at 397.6 million barrels in the week ended May 2, according to the EIA, the Energy Department’s statistical arm. Crude supplies were projected to rise 1.25 million, according to the median estimate of 10 analysts surveyed by Bloomberg.

U.S. crude production declined 2,000 barrels a day to 8.35 million, the EIA said. Output has surged this year as a combination of horizontal drilling and hydraulic fracturing, or fracking, unlocked supplies trapped in shale formations.

Refineries operated at 90.2 percent of capacity in the seven days ended May 2, down 0.8 percentage point from the prior week.

Supplies of distillate fuel, a category that includes heating oil and diesel, fell 447,000 barrels last week to 114 million, the report showed. Gasoline stockpiles increased 1.61 million to 213.2 million.

Russia called on Ukraine to postpone a May 25 presidential election as the government in Kiev continued a military offensive against separatists in its east and south. The U.S., which has accused Russia of fomenting unrest, is discussing a third round of penalties with European Union officials that may target Russia’s financial, energy or mining industries.

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