Oil hits session high as inventories drop more than projected

Both WTI and Brent benchmarks extended their daily gains as the Energy Information Administration reported that U.S. crude oil inventories fell more than expected last week. Motor gasoline and distillate fuel supplies confounded analystss projections for an increase and dropped more than 1 million barrels each.

On the New York Mercantile Exchange, WTI crude for delivery in November rose by 0.74% to $105.60 per barrel at 14:57 GMT after hovering near the $105.00 mark minutes before the release of the report. Prices held in range between day’s high of $105.83 per barrel and low at $104.56, the weakest level since August 22. Light, sweet crude fell by 0.6% on Tuesday, and trimmed its weekly decline to 2.7% after Wednesdays rebound.

Meanwhile on the ICE, Brent oil for delivery in November traded at $108.50 per barrel at 14:57 GMT, up 0.28% on the day. The European benchmark hit a new session high of $108.72 per barrel minutes after the release of the data after trading around the $108.00 mark shortly before the publish. The contract plunged 1.9% on Tuesday, a third consecutive daily loss, but trimmed its weekly decline to 2.9% on Wednesday.

Both benchmarks rose to session highs after a surprisingly bullish inventories report by the EIA which exceeded analysts expectations. The government agency said that U.S. crude inventories dropped by 4.4 million barrels, or 1.2%, in the week ended September 13 to 355.6 million barrels. This was the lowest since March 2012 and neared the average range for this time of the year. Refineries utilization remained unchanged for a second week at 92.5%, rebutting analysts forecasts for a drop. Inventories at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts, fell by 861 000 barrels to 33.3 million, the lowest in 19 months.

Both gasoline and distillate fuel production rose last week and averaged 9.3 million and 5.1 million barrels per day respectively. Motor gasoline supplies dropped by 1.6 million barrels, or 0.7%, but remained in the upper half of the average range for this time of the year. Meanwhile, distillate fuel inventories fell by 1.1 million barrels and remained near the lower limit of the average range. Total products supplied over the last four weeks averaged 19.1 million bpd, marking a 2.9% increase from the same period a year ago.

EIAs upbeat data exceeded analysts projections. According to a Bloomberg News survey of analysts, the report was likely to show that U.S. crude oil inventories fell by 1.2 million barrels to 358 million, while both gasoline and distillate fuel supplies were projected to have increased by 500 000 barrels.

According to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos, crude supplies were expected to have declined by 1.5 million barrels. Gasoline stockpiles were projected to have remained flat, while distillate fuel supplies were supposed to have increased by 1 million barrels. Refineries were expected to have operated at 92.1% of their operable capacity, a 0.4% drop.

Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut, said for Bloomberg: “WTI is up this morning because of the fairly large draw at Cushing. I don’t expect any big moves until this afternoon. The market will tread water until the FOMC meeting ends and they announce what they will do about stimulus.”

Investors remained cautious ahead of the outcome of FOMC’s two day meeting, which will conclude at 18:00 GMT. Broad expectations call for an announcement that the Federal Reserve will pare its $85 billion bond purchasing program by at least $10 billion. Fed Chief Ben Bernanke is due to make a statement at 18:30 GMT.

According to a Bloomberg survey conducted on September 6, the central bank will reduce its monthly purchases of Treasuries to $35 billion from $45 billion and keep mortgage-bond buying unchanged at $40 billion. Credit Suisse analysts expected a $20 billion reduction.