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WTI Crude Climbs as Cushing Supplies Drop 16th Time in 17 Weeks

May 29 (Bloomberg) -- West Texas Intermediate oil rose after stockpiles at Cushing, Oklahoma, the delivery point for the crude futures contract, fell for the 16th time in 17 weeks and gasoline demand surged to the highest level since August.

Supplies at Cushing slipped 1.53 million barrels to 21.7 million last week, the least since November 2008, Energy Information Administration data showed. Gasoline supplies declined while demand gained as the U.S. summer vacation season started. Brent oil climbed on concern that increasing violence in Ukraine will lead to a disruption of shipments of oil and gas from Russia.

“There was a big drop in crude supplies at Cushing and in the products everywhere,” said Michael Lynch, the president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Fuel demand is really strong as well, which should send prices higher in the weeks ahead.”

WTI for July delivery increased 86 cents, or 0.8 percent, to settle at $103.58 a barrel on the New York Mercantile Exchange. Futures are up 5.2 percent this year. The volume of all futures traded was 19 percent below the 100-day average at 3:06 p.m.

Brent for July settlement climbed 16 cents to end the session at $109.97 a barrel on the London-based ICE Futures Europe exchange. Volume was 17 percent lower than the 100-day average. Brent’s premium to WTI narrowed to $6.39 a barrel.

The EIA weekly supply report was delayed for a day because on the U.S. Memorial Day holiday on May 26.

Keystone Pipeline

Cushing inventories have tumbled from 41.8 million barrels in late January as the southern leg of the Keystone XL pipeline began moving crude to Gulf Coast refineries. Adam Longson, a Morgan Stanley analyst in New York, said in an e-mailed note on May 5 that they may reach a floor of 20 million before the end of the month.

“Cushing inventories are falling to disturbingly low levels,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “Cushing will remain the focus of the market until we start to see a rebound in supply.”

Stockpiles of gasoline declined 1.8 million barrels to 211.6 million. Consumption rose 1.7 percent to 9.1 million barrels a day averaged over the last four weeks. That’s 5.4 percent higher than a year earlier. Demand peaks between Memorial Day this month and Labor Day in early September.

Gasoline for June delivery rose 0.77 cent, or 0.3 percent, to settle at $3.0136 a gallon in New York.

Record Inventories

Supplies of distillate fuel, a category that includes heating oil and diesel, slipped 196,000 barrels last week to 116.1 million. Distillate demand advanced 1.8 percent to 4.15 million barrels a day in the past four weeks, the most since November.

Nationwide crude stockpiles climbed 1.66 million barrels to 393 million in the seven days ended May 23, according to the EIA, the Energy Department’s statistical arm. Analysts surveyed by Bloomberg projected a 500,000-barrel gain. Supplies rose to 399.4 million barrels in the week ended April 25, the most since the agency began publishing weekly data in 1982.

U.S. crude production gained 38,000 barrels a day to 8.47 million, the most since October 1986. Output has surged this year as a combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations, including the Bakken in North Dakota and the Eagle Ford in Texas.

Operating Rate

Refineries operated at 89.9 percent of capacity last week, up 1.2 percentage points from the prior week.

Brent is poised for a second monthly gain amid separatist violence in Ukraine that erupted after Russia annexed the Black Sea peninsula of Crimea in March. Ukraine is a conduit for Russian oil and natural gas supplies to Europe.

Pro-Russian rebels downed a military helicopter in eastern Ukraine, killing 13 troops and a general. A Mi-8 transport chopper with a shoulder-fired missile amid heavy fighting in Slovyansk, 100 miles (160 kilometers) from the Russian border, Speaker Oleksandr Turchynov told parliament today.

“It’s necessary to take emergency steps to stop the bloodshed and start an inclusive internal Ukrainian dialog,” Russia’s Foreign Minister Sergei Lavrov told his German counterpart Frank-Walter Steinmeier by phone yesterday, according to the ministry’s website.

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