U.S. crude stocks posted a surprise drop last week, government data showed on Wednesday, and analysts cited higher refinery operations and disruptions to imports due to fog on the Gulf Coast.

However, the Energy Information Administration report also showed another build in crude inventories at Cushing, Oklahoma, which logged a 1.2 million barrel build week to a record 28.7 million barrels. This followed a 4.7 million barrel build the prior week at the NYMEX delivery point for physical barrels.

Total commercial stockpiles of crude oil inventories in the United States decreased by 3.1 million barrels to 318.2 million in the week to December 19, compared with average analysts’ estimates for a build of 400,0000 barrels.
Crude oil imports fell 555,000 barrels per day last week, it said.

“It is definitely bearish. It might have been even a more bearish report if it weren’t for the fact that we had some weather issues down in the Gulf affecting imports,” said Phil Flynn, an analyst at Alaron Trading in Chicago.
“I think winter is playing havoc, not in the sense of using more heating oil but slowing down imports,” Flynn added.

Refinery utilization unexpectedly rose 0.6 percentage point to 84.7 percent of capacity compared with projections for a 0.1 percentage point fall.

Stockpiles of distillates rose 1.8 million barrels to 135.3 million and gasoline inventories rose 3.3 million barrels to 207.3 million, EIA added.
The distillates and gasoline builds by far topped forecasts of gains of 200,000 barrels and 500,000 barrels, respectively.

The product builds followed a rise of 724,000 barrels per day in imports of refined fuels to 3.66 million bpd, the report noted.

U.S. supplies of heating oil, however, fell 700,000 barrels to 41.2 million, amid colder temperatures in much of the nation, including the key consuming region in the Northeast.

But with consumer demand for gasoline, diesel and jet fuel still weak overall, total U.S. product demand logged a 4.2-percent fall from a year ago to reach 19.79 million barrels per day over the past four weeks.

“This build in products (and) draw in total crude supply (is) partially related to the fact that refinery activity increased by 0.6 percent of capacity rather than declining …” said Jim Ritterbusch, president of Ritterbusch & Associates.

“Further reinforcement to our bearish case was provided by another build in Cushing crude stocks of 1.2 million barrels to a record level,” he said. “All in all, there is nothing in this report that would even remotely alter our near term bearish view.”

Analysts say the Cushing builds are the result of market players moving crude into storage in the hub to take advantage of a contango futures price structure in which the frontmonth is cheaper than further out contracts, essentially meaning it’s profitable to hold oil in tank for future sale.

On the NYMEX, February crude futures remained pinned firmly in the red after the EIA data was issued, last down 3.4 percent at $37.64 a barrel.

Separately, the American Petroleum Institute reported that U.S. crude oil stocks were off 4.2 million barrels, while distillates fell 667,000 barrels and gasoline rose 1.7 million barrels.

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Japan’s retail regular gasoline prices have fallen to their lowest on records going back to 2004, a research body said on Thursday, as crude oil prices have dived more than $100 since hitting all-time highs in mid-July.

The average pump price of regular gasoline in Japan was 110.6 yen ($1.22) per liter ($4.62 a U.S. gallon) on Thursday, down for the 20th straight week and marking the lowest since the Oil Information Center started taking the survey in June 2004.

The data was released a day later than usual due to a national holiday on Tuesday. The latest price marks a 40.2 percent decline from the record 185.1 yen hit on August 4.

From this autumn several domestic refiners began revising domestic wholesale gasoline and other oil prices on a weekly basis to allow spot market prices to reflect trends earlier.

Price adjustments had previously been done once a month based on changes in crude oil import and other costs.

Following is a table of average retail prices in Japan for regular gasoline, high-octane gasoline and diesel oil (yen per liter, with kerosene in yen per 18 liters):

DATE High-octane Regular Diesel Kerosene

Dec 22 121.6 110.6 106.0 1,292

Dec 15 125.5 114.7 109.3 1,332

Dec 8 129.9 119.1 113.2 1,377

Dec 1 134.1 123.3 117.0 1,431

Nov 25 138.7 127.9 120.7 1,498

Nov 17 142.9 132.0 124.0 1,566

Nov 10 147.5 136.6 127.8 1,651

Nov 4 151.9 141.0 131.2 1,737

Oct 27 162.2 151.3 139.5 1,943

Oct 20 168.2 157.4 144.0 2,018

Oct 14 172.5 161.6 147.5 2,075

Oct 6 175.5 164.7 150.0 2,117

Sept 29 181.1 170.2 155.8 2,235

Sept 22 182.3 171.5 156.9 2,248

Sept 16 183.8 173.0 158.0 2,264

Sept 8 185.3 174.5 159.1 2,276

Sept 1 187.1 176.2 160.5 2,293

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The UAE joined Saudi Arabia in deepening oil supply curbs after OPEC’s biggest ever output cut last week, telling refiners on Thursday it would tighten shipping limits on exports of its main grades.

While top exporter Saudi Arabia effectively started implementing OPEC’s December 17 cuts even before the cartel had agreed them, other members had yet to follow up with clear action, raising questions about compliance.

Oil prices have deepened their slide since July to more than $110 a barrel on speculation that OPEC is doing too little or too late to offset the slump in global demand.

In a statement to customers and media including Reuters, the Abu Dhabi National Oil Co (ADNOC) said customers who buy its Murban and Upper Zakum grades would no longer have the option to load an additional 5 percent above normal volumes on each cargo, a standard industry practice known as “operational tolerance.”

“Murban and Upper Zakum cargoes will be treated at Max/-5 percent tolerance loading basis,” said ADNOC, which pumps most of the crude produced in the United Arab Emirates, the world’s fifth-largest oil exporter.

At the same time ADNOC said it would continue to supply its customers of Murban crude with 15 percent less than normal contractual supplies, as it did in December, while Upper Zakum supplies will be reduced by 3 percent from the norm.

ADNOC later said in another statement that it would cut February Murban and Upper Zakum allocations by 15 percent, and reduce Lower Zakum and Umm Shaif allocations by 10 percent each.

“Murban, Lower Zakum, Umm Shaif and Upper Zakum cargoes will be treated at Max/-5 percent tolerance loading basis,” it said.

Overall, refiners and analysts agreed the notice represented hard evidence of one of OPEC’s core members implementing its share of the group’s agreed 2.2 million barrel per day (bpd) production cut, their third since September that amount to removing 5 percent of world supply from the market.

The news could aid oil prices that have been undermined by concerns over adherence to OPEC’s cuts. U.S. crude fell 9 percent to about $35 a barrel on Wednesday, near its lowest in over four and a half years after more gloomy U.S. economic data.

“The move shows compliance to OPEC’s decision to cut supply and could send a signal for tighter supply ahead. It’s possible that the move could effectively help support prices,” said Soichi Okuda, chief economist at Sumitomo Shoji Research Institute.

Spot differentials for February-loading Murban crude strengthened to a premium of more 10 cents a barrel to ADNOC from flat to less than 10 cents on news of the cuts, traders said.


The ADNOC statement on the January cuts did not mention its Umm Shaiff or Lower Zakum grades, shipments of which were cut 5 and 10 percent in December. Sources with some Northeast Asian refiners said they understood they could still use an option to load 5 percent above contract volumes on those smaller grades.

Oil refiners in Asia have been on tenterhooks this week as they awaited last-minute cuts to January Gulf crude supplies that could force them to quickly revise their purchase plans.

But apart from the UAE and Saudi Arabia’s earlier action, industry sources said they’ve received no notices of deeper cuts, making it likely that the next wave may come only for February.

Kuwait had already eliminated the option for upside tolerance several weeks ago, but at the same time removed other supply curbs it had imposed earlier, suggesting that it was trading one type of cut for another rather than removing more supply.

Saudi Arabia Oil Minister Ali al-Naimi said last week that the kingdom was now pumping about 8.2 million bpd, not far above its new January 1 quota of 8.05 million bpd.

Following are the cuts in ADNOC term crude supplies to Asian lifters for November and December 2008, and January and February 2009.

November 2008

Upper Zakum 5 %

December 2008

Murban 15 %

Lower Zakum 10 %

Umm Shaif 5 %

Upper Zakum 5 %

January 2009

Murban 15 %

Upper Zakum 3 %

February 2009

Murban 15 %

Upper Zakum 15 %

Lower Zakum 10 %

Umm Shaif 10 %

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