China said oil imports climbed 25 percent last monOil Rises More Than $5 on Larger-Than-Expected U.S. Supply Drop
By Mark Shenk
June 11 (Bloomberg) -- Crude oil rose more than $5 a barrel in New York after a U.S. government report showed that inventories declined for a fourth week, increasing concern stockpiles may be strained during the summer driving season.
Supplies fell 4.56 million barrels to 302.2 million last week, the Energy Department said, three times what was forecast in a Bloomberg News survey. Prices also climbed because the euro rose against the dollar, China said oil imports climbed 25 percent last month and BP Plc Chief Executive Officer Tony Hayward said Russian output may continue to fall.
``This move was sparked by the very bullish crude inventory number,'' said Daniel Flynn, a broker with Alaron Trading Corp. in Chicago. ``Falling inventories make us vulnerable to disruptions. The cheap dollar is only adding fuel to the fire.''
Crude oil for July delivery rose $5.07, or 3.9 percent, to settle at $136.38 a barrel at 2:48 p.m. on the New York Mercantile Exchange. Oil reached a record $139.12 a barrel on June 6. Futures have doubled in 12 months as investors looking to hedge against the dollar's drop helped push oil, gold and corn to records this year.
Continental Airlines Inc., the fourth-largest U.S. carrier, said travel demand will decline as the industry boosts fares to help recoup record fuel costs. Continental said on June 5 that it will cut 3,000 jobs and slash its jet fleet by 18 percent.
UAL Corp.'s United Airlines, the second-largest U.S. carrier, said June 4 it was shutting its low-fare Ted brand and retiring 70 planes. No. 3 Delta Air Lines Inc. said June 3 it would cut an unspecified amount of U.S. seating capacity beyond the 11 percent reduction announced in April.
Railroad Pain
Railroads are also struggling with the increase in fuel costs. Burlington Northern Santa Fe Corp. tumbled the most since August after UBS AG recommended investors sell the shares on concern the second-largest U.S. railroad may cut its earnings forecast as fuel costs rise.
U.S. crude-oil stockpiles fell 7.2 percent in the past four weeks, the department said. Supplies of gasoline and distillate fuel, a category that includes heating oil and diesel, rose.
Refineries operated at 88.6 percent of their capacity last week, down 1.1 percentage points from the week before, the department said. Analysts were forecasting a 0.3 percentage point increase in operating rates.
Falling Demand
``Refiners are managing the crude supply they have on hand because they are worried about weak product demand,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``Both gasoline and distillate demand over the last four weeks are down from a year ago.''
Fuel consumption averaged 20.4 million barrels a day in the four weeks ended June 6, down 1.3 percent from a year earlier, the department said.
U.S. gasoline demand increases during the summer, when Americans take to the highways for vacations. The peak- consumption period lasts from the Memorial Day weekend in late May to Labor Day in early September.
Gasoline futures for July delivery rose 14.65 cents, or 4.4 percent, to settle at $3.4658 a gallon in New York. Futures reached an all-time high of $3.565 on June 6.
U.S. pump prices passed $4 a gallon for the first time last weekend. Regular gasoline, averaged nationwide, rose 0.9 cent to a record $4.052 a gallon, AAA, the nation's largest motorist organization, said today on its Web site.
The euro increased 0.6 percent to $1.5558 at 3:11 p.m. in New York, from $1.5467 yesterday.
The euro strengthened today as European Central Bank council member Athanasios Orphanides said he can't rule out more interest-rate increases after July. ECB policy makers have not followed the Federal Reserve and the Bank of England in cutting interest rates to spur economic growth.
Fighting Inflation
``The so-called speculators are using oil as an asset class to store value as the dollar drops,'' said Bill O'Grady, director of fundamental futures research at Wachovia Securities in St. Louis. ``We probably won't see oil fall by much until the Fed makes fighting inflation a priority, raises interest rates and the dollar strengthens.''
China's crude-oil imports jumped 25 percent last month from a year earlier as refiners boosted fuel production to meet higher demand in southwestern regions rattled by an earthquake. Imports rose to 16.2 million metric tons in May, or about 3.8 million barrels a day, the Beijing-based Customs General Administration of China said on its Web site today.
Russia's tax system takes 90 percent of a company's earnings when oil prices rise above $30 a barrel, BP's Hayward said. The nation's crude production will fall this year, according to his estimates. Russia is the world's second-biggest oil supplier.
Russian Response
``Russian authorities are responding'' with fiscal regime changes, though it may take ``a couple of years to reverse the current trend,'' Hayward said at a presentation in London today.
Global oil production fell for the first time in five years in 2007 and reserves also declined as prices rose to records, BP Plc said today in its annual Statistical Review of World Energy. Output dropped 0.2 percent to 81.533 million barrels a day last year, the company said.
Saudi Arabia is inviting heads of state from the Organization of Petroleum Exporting Countries and oil-consuming nations, along with representatives from oil-trading banks, to a meeting to discuss the impact of record energy prices. The gathering is scheduled for June 22 in Jeddah, Saudi Arabia.
``This one is different,'' OPEC Secretary General Abdalla el-Badri said in an interview in London. ``This one is specifically to tackle the high oil prices, why they are high, who is to blame. Is this a real shortage in the market, or speculation, or the dollar? What is wrong?''
The International Energy Agency stands ready to release emergency stockpiles because the world faces an ``oil crisis,'' the agency's chief, Nobuo Tanaka, said in an interview in Tokyo. The IEA, which advises 27 developed nations on energy policy, was set up in 1974 in response to the Arab oil embargo.
`Threat to OPEC'
``There is no supply shortage at the moment, so I don't know why the IEA is saying that it may release stockpiles,'' O'Grady said. ``It may be a threat to OPEC more than anything else.''
President George W. Bush and German Chancellor Angela Merkel said more sanctions will be placed on Iran if the government continues to ignore demands to suspend uranium enrichment. Bush also reiterated that all options remain open regarding Iran, after talks in Germany with Merkel.
Brent crude oil for July settlement rose $4, or 3.1 percent, to $135.02 a barrel on London's ICE Futures Europe exchange. Prices climbed to a record $138.12 on June 6.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Last Updated: June 11, 2008 15:43 EDT
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