Crude Oil Declines More Than $2 After U.S. Supplies Increase

Crude Oil Declines More Than $2 After U.S. Supplies Increase

Feb. 21 (Bloomberg) -- Crude oil fell more than $2 a barrel after an Energy Department report showed that U.S. inventories rose more than expected last week, the sixth-straight increase.

Inventories climbed 4.2 million barrels to 305.3 million barrels, the highest since November, the report showed. A gain of 2.4 million barrels was forecast, according to the median of 12 responses in a Bloomberg News survey. Supplies of gasoline rose and stockpiles of distillate fuel, a category that includes heating oil and diesel, dropped, the report showed.

``Gasoline supplies are near the highest level ever, and crude oil supplies are still gaining,'' said Kyle Cooper, director of research at IAF Advisors in Houston. ``Even though distillate supplies fell, the drop was smaller than a year ago so the deficit is falling.''

Crude oil for April delivery fell $2.18, or 2.2 percent, to $97.52 a barrel at 12:52 p.m. on the New York Mercantile Exchange. Prices are up 51 percent from a year ago. Futures rose to a record $101.32 a barrel yesterday on signs OPEC may cut output and that U.S. interest rates may fall.

Brent crude for April settlement declined $2.16, or 2.2 percent, to $96.26 a barrel on London's ICE Futures Europe exchange. Futures reached $99.22 a barrel yesterday, the highest since trading began in 1988.

The department released its weekly report on inventories today at 10:30 a.m. in Washington, a day later than usual because of the Presidents Day holiday on Feb. 18.

Crude-oil stockpiles have risen 22.4 million barrels, or 7.9 percent, in the past six weeks. Supplies last week were 1.9 percent above the five-year average for the period, the department said. Inventories were 1.2 percent above the five-year average a week earlier.

Refinery Operations

Refineries operated at 83.5 percent of capacity, down 1.6 percentage points from the prior week, the report showed. It was the lowest rate since March 2006.

``The low operating rates would be cause for concern if we had demand growth, but we don't,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``Refineries are curtailing output for economic reasons. There's weak product demand and they are responding by reducing output.''

Total implied fuel demand averaged 20.7 million barrels a day in the past four weeks, down 1.1 percent from a year earlier, the department said. Demand for distillate fuel, a category that includes heating oil and diesel, averaged 4.3 million barrels over the period, down 1.9 percent last year.

Gasoline demand averaged 9 million barrels a day over the period, up 0.5 percent from a year earlier.

The department measures shipments from refineries, pipelines and terminals to calculate demand.

Backing Off

``Oil is going to back off here in the second quarter,'' billionaire hedge-fund manager said in an interview on CNBC. ``It'll be back above $100 in the second half.''

Pickens, the founder and chairman of Dallas-based BP Capital LLC, told CNBC that he was short on both crude oil and natural gas. He didn't provide additional information on his positions. A short is a bet that prices will decline.