OIL FUTURES: US Crude Weaker On Inventory Builds, Demand Drop

Published: Feb 02, 2012

By David Bird
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--U.S. crude oil futures were trading at six-week lows early Thursday, weighed down by weak demand and rising inventories.

Meantime, globally traded North Sea Brent crude advanced for a fourth day, as analysts said refiners were lining up alternatives to Iranian oil ahead of tightening sanctions which include a European Union embargo.

The oil market wasn't moved by a sign of improvement in the U.S. economy, as initial claims for U.S. unemployment benefits fell by more than expected last week. The Labor Department said the number of new claims fell 12,000, while analysts expected a 7,000 decline.

"It's getting clobbered again," said Tom Bentz, director at BNP Paribas Prime Brokerage. "The market has really started to fade since we got the inventory data."

U.S. oil inventory data released Wednesday showed refineries cut crude processing to a nine-month low of 14.2 million barrels a day, helping stocks rise by a higher-than-expected 4.2 million barrels in the week.

Oil demand, meantime, posted the biggest single-week drop in 14 years to set a 13-year average daily low of 17.653 million barrels a day, according to the Energy Information Administration. Demand was 6% below a year ago as gasoline, the most-widely used petroleum product, fell 1.6% on-week and 6.8% from a year earlier. The gasoline demand drop, to below 8 million barrels a day, came as retail prices averaged at their highest-ever January level.

Gasoline stocks rose by 3 million barrels last week, while a rise of just 200,000 barrels was expected. Stocks now are sufficient to cover nearly 29 days of demand at current levels, the highest cover in 13 years.

Light, sweet crude oil futures on the New York Mercantile Exchange was $1.04 lower at $96.57 a barrel, after a trading to a low of $96.30, the weakest intraday level since Dec. 20. In the past four days, crude has shed 2%.

ICE Brent crude was 51 cents higher, at $112.07 a barrel. The spread between the two contracts widened to above $15 a barrel Thursday, a level it hasn't reached since early November.

"The worries over Iran are supporting Brent" more than they are the U.S. benchmark, said Bentz. "It's almost looks as if they are to separate commodities. There is really not much they have in common at this point."

Jim Ritterbusch, analyst at Ritterbusch and Associates, said weakness in the U.S. crude market is being helped by expectations of lower refinery operations in the Midwest, home to Cushing, Okla., the delivery point of the Nymex contract.

Reformulated gasoline blendstock futures for March were 1,.98 cents lower at $2.8724 a gallon, while March heating oil was 0.84 cent higher at $3.055 a gallon.

-By David Bird, Dow Jones Newswires; 212-416-2141; david.bird@dowjones.com