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Crude Oil Rises as U.S. Refineries Increase Gasoline Production

Crude Oil Rises as U.S. Refineries Increase Gasoline Production

By Robert Tuttle

May 21 (Bloomberg) -- Crude oil rose above $66 a barrel in New York to its highest price in three weeks as refineries stepped up production of gasoline to meet increased demand for summer.

U.S. refineries have boosted crude processing in recent weeks after disruptions earlier in the year cut output. Gasoline inventories rose to 195.2 million barrels the week ended May 11, the second consecutive weekly increase, according to a U.S. Energy Department report on May 16. The gain left supplies 7.5 percent below the five year average.

``Between now and the beginning of July, we need to build about 2.5 million barrels a week'' of gasoline supplies, said Dominick Chirichella, an analyst at Energy Management Inc. in New York. ``It's a matter of will the industry be able to make it up between now and July.''

Crude oil for June delivery rose $1.33, or 2.1 percent, to settle at $66.27 a barrel on the New York Mercantile Exchange at 2:57 p.m., the highest close since April 27. The price is up 8.6 percent this year.

Brent crude for July settlement rose $1.07 to $70.46 a barrel on the ICE Futures Exchange in London. It was the highest close since Aug. 28.

U.S. gasoline consumption peaks in the period from Memorial Day at the end of this month to Labor Day at the beginning of September.

``The outlook for the summer is not good for gasoline,'' said Addison Armstrong, director of market research at TFS Energy LLC in Stamford, Connecticut. As refineries ``start producing more gasoline, they're going to be using more crude.''

Gasoline futures for June delivery fell 0.64 cent to $2.4013 a gallon in New York.

OPEC Supply

OPEC, which supplies about two-fifths of the world's oil, won't heed calls from consumers to increase output for the summer driving season, officials from Libya and Qatar said.

``We are convinced that the market is not short of supply,'' Qatari Energy Minister Abdullah Al-Attiyah told reporters in the Persian Gulf nation's capital Doha today. Geopolitical risks in the Middle East and Africa, not lack of production, are pushing oil prices higher, he said.

The Organization of Petroleum Exporting Countries pledged to reduce output by 1.7 million barrels a day last year. The group, excluding Iraq and Angola, produced 26.41 million barrels a day in April, down 1.2 million barrels since September, according to Bloomberg estimates.

Operations Restored

In Nigeria, Africa's biggest oil producer, Royal Dutch Shell Plc said it resumed full operation at an oil-gathering center seized by villagers during a protest last week.

The Bomu manifold, a gathering point for crude oil flowing to the Bonny export terminal, resumed full capacity of 170,000 barrels a day over the weekend, London-based Shell spokesman Adam Newton said by telephone today.

The manifold was shut on May 10 after locals occupied the facility. The Bonny terminal's exports for May and June remain under force majeure, Newton said. That's a legal clause meaning deliveries are suspended because of conditions beyond the company's control.

In Nigeria, the Movement for the Emancipation of the Niger Delta, the main militant group in the oil-producing region, said it had no plans to attack a refinery in Port Harcourt to protest the government's sale of its stake in the plant last week. The group may attack a pipeline supplying the refinery, Jomo Gbomo, a MEND spokesman, said today.

Unrest has halted about 900,000 barrels a day of crude output in Nigeria, Africa's biggest oil producer, Vienna-based PVM Oil Associates GmbH estimates.

Union leaders said yesterday oil and gas workers would stop work on May 24 to protest the sale of the government's stake in the refinery to Bluestar Oil Services Ltd. Consortium, a Nigerian group, for $561 million.

To contact the reporter on this story: Robert Tuttle in New York at rtuttle@bloomberg.net