Oil gains for second day as supplies fall more than forecast

Aug. 15 (Bloomberg) -- Crude gained for a second day after the U.S. Energy Department said stockpiles fell more than expected last week.

Futures erased losses as supplies dropped 3.7 million barrels in the seven days ended Aug. 10, more than twice the 1.5 million-barrel decrease forecast by analysts polled by Bloomberg. Oil declined earlier as the Empire State Index showed manufacturing in the New York area contracted in August.

“The crude draw is bigger than expected so you would expect a little bit of a bullish reaction and that’s what we’ve got,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “The Empire Index is not good at all and it’s not adding bullish tones in oil.”

Oil for September delivery rose 42 cents, or 0.4 percent, to $93.85 a barrel at 11:56 a.m. on the New York Mercantile Exchange. The price was $92.90 before the report was released at 10:30 a.m. Prices have declined 5 percent this year.

Brent crude for September settlement, which expires tomorrow, rose $1.20, or 1.1 percent, to $115.23 on the London- based ICE Futures Europe exchange. The more-active October contract gained $1.23, or 1.1 percent, to $113.38.

Oil inventories dropped 1 percent to 366.2 million barrels, the lowest level since April 6, according to the Energy Department.

Gasoline, Distillates

Gasoline stockpiles fell 2.37 million barrels to 203.7 million. The forecast was a decrease of 2 million barrels. Distillate supplies, which include heating oil and diesel, rose 677,000 to 124.2 million versus an expected decline of 275,000.

The refinery utilization rate was unchanged at 92.6 percent.

Oil also climbed as U.S. industrial production increased in July and on concern that Middle East tension will disrupt supplies.

The 0.6 percent increase in output at factories, mines and utilities followed a revised 0.1 percent gain in June, Federal Reserve data showed. Economists forecast a 0.5 percent rise, according to the Bloomberg survey median. Manufacturing, which makes up about 75 percent of total production, rose 0.5 percent for a second month.

The Tel Aviv-based Haaretz newspaper reported Aug. 10 that Israel is considering an attack on Iran’s nuclear facilities before U.S. elections on Nov. 6. Dozens of people crowded in front of a storefront at a Jerusalem shopping mall yesterday to pick up new gas masks, part of civil defense preparations in case of military action. Iran supplied 2.8 million barrels of oil a day in July, according to the Energy Department.

‘Main Reason’

In Syria, a bomb exploded close to the army headquarters as the U.S. accused Iran of training a new militia to ease pressure on President Bashar al-Assad’s government. The regime is “collapsing emotionally and politically,” former Prime Minister Riad Hijab said in his first public appearance since defecting to Jordan.

“The Middle East is the main reason that’s keeping oil prices higher,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. “There is a clear debate going on in Israel on whether or not they should attack Iran.”

Prices fell as much as 0.8 percent earlier after the Federal Reserve Bank of New York’s general economic index fell to minus 5.9. The first decline since October of the Empire State Index, which covers New York, northern New Jersey and southern Connecticut, followed a gain of 7.4 in July. Readings less than zero signal contraction.

“The index is definitely bearish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The talk about Iran and the possibility of an Israeli strike is helping oil.”

Bloomberg News

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