Oil Trades Near Highest in Two Weeks on U.S. Fuel Demand; SocGen Sees $106

Oil traded near a two-week high in New York on signs of increased U.S. fuel demand after a government report showed inventories of diesel and heating oil fell in the world’s biggest crude-consuming nation.


Futures reached their highest since May 11 today after the Energy Department said yesterday that U.S. distillate supplies declined 2.04 million barrels to 141.1 million last week, the lowest since April 2009. Fuel demand climbed 2.2 percent. Oil may rise to $106 a barrel in coming weeks as prices mirror an early-May pullback in 2010 that launched a rally in the rest of that year, Societe Generale SA said.


“People are optimistic about a recovery even though the economics suggest otherwise,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who predicted oil will average $100 this year. “The fact that oil hasn’t broken through $95 on the downside is the key.”


Crude for July delivery on the New York Mercantile Exchange was at $101.22 a barrel at 9:14 a.m. London time, down 10 cents, after gaining as much as 58 cents to $101.90. Brent crude for July settlement was at $114.73 a barrel, down 23 cents, on the ICE Futures Europe exchange in London. The contract yesterday climbed $2.40, or 2.1 percent, to $114.93, the highest settlement since May 10.


China Power Shortages


“Distillates stole center stage from gasoline on worries about surging demand in China and India,” said Phil Flynn, vice president of research at PFGBest in Chicago.


China may face power shortages of 30 gigawatts this summer, the China Electricity Council said last month. The government suspended diesel exports to increase supplies for use in power generation.


U.S. distillate consumption was the highest since the week ended April 15, according to the Energy Department. Total fuel demand climbed 2.2 percent to 18.9 million barrels a day. Refineries operated at 86.3 percent of capacity, the most since Jan. 7.


Heating oil futures in New York climbed for a third day, gaining as much as 1.97 cents, or 0.7 percent, to $3 a gallon.


U.S. gasoline stockpiles increased 3.79 million barrels to 209.7 million, the biggest addition since February, according to the report. They were forecast to rise 450,000 barrels, according to the median of 14 analyst estimates in a Bloomberg News survey. Gasoline use dropped 0.3 percent to 9.03 million barrels a day.


Fibonacci Support


Crude oil supplies gained 616,000 barrels to 370.9 million. Stockpiles were forecast to decrease by 1.5 million barrels, according to the survey.


Oil in New York, heading for the first monthly decline since August, has rebounded from its Fibonacci support near $95 a barrel, a level based on weekly price swings over the past year, according to Stephanie Aymes, a cross-commodity technical analyst at Societe Generale. Crude will probably continue to trade “sideways” in coming weeks before climbing to $106, the next Fibonacci retracement level, she said.


Oil also gained after the Organization for Economic Cooperation and Development raised its forecast for U.S. growth this year. The economy will expand 2.6 percent, up from a November estimate of 2.2 percent, the organization said in its annual economic outlook published yesterday. The OECD maintained its forecasts for the world economy to expand 4.2 percent this year and 4.6 percent in 2012.


Schork Report


The dollar declined, making commodities more attractive as an investment. The Dollar Index, a measure of the greenback against six major currencies, fell as much as 0.6 percent today, the biggest decline since April 20.


The Bank of England may raise interest rates after its economy expanded in the first quarter, which may support oil prices, according to Stephen Schork, Villanova, Pennsylvania- based analyst at The Schork Group Inc.


“This would put pressure on the Bank of England to ramp up interest rates which would, in turn, increase the strength of sterling,” he said in today’s Schork Report. “A stronger sterling implies a weaker dollar, and a weaker dollar implies… that’s right, higher crude oil prices.”


Brent crude, the European benchmark contract, traded at a premium of $13.47 a barrel to U.S. futures, compared with $13.61 yesterday. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb. 21. It averaged 76 cents last year.


Brent has advanced 22 percent this year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya, Iran and Syria. Yemen’s President Ali Abdullah Saleh said fighting could drag the country into civil war and warned that those who seek to disrupt security would be met with force.


The Organization of Petroleum Exporting Countries will leave production quotas unchanged at its June 8 meeting in Vienna because there is enough oil to meet demand, Iraq’s Deputy Prime Minister Hussain al-Shahristani said yesterday.
(Source:Bloomberg)