NEW YORK (Dow Jones)--Crude futures neared a one-month low Thursday after government data showed a plunge in refinery activity due to weak fuel demand.
Light, sweet crude for March delivery recently traded 92 cents, or 1.2%, lower at $76.82 a barrel on the New York Mercantile Exchange. The February contract expired Wednesday at $77.62 a barrel. Brent crude on the ICE futures exchange traded 93 cents lower at $75.39 a barrel.
Refineries operated at 78.4% of capacity last week, their lowest rate in at least two decades outside the immediate aftermath of a hurricane, according to data put out by the U.S. Energy Information Administration.
The sharp drop came as products supplied, a proxy for demand, slipped 1.8% from year-ago levels in the four weeks ended Jan. 15. With demand below levels seen even during the depths of the recession, it now appears that investors will need to wait a few months more before the oil market feels the effects of the economic recovery.
"Refineries just don't want to produce product as demand is lackluster and the money is not there," said Mike Zarembski, senior commodities analyst with OptionsXpress in Chicago.
Low refinery operating rates could lead to tighter fuel supplies down the line, but that still leaves massive surpluses in most product categories to burn through.
Gasoline inventories jumped 4 million barrels last week, putting stockpiles near a two-year high. Distillate stocks, including heating oil and diesel, dropped 3.3 million barrels, though inventories are still well above normal. Oil inventories fell 500,000 barrels, the EIA said.
Expectations were for oil inventories to rise 1.9 million barrels, while gasoline inventories were seen growing 1.3 million barrels, according to a Dow Jones survey. Distillate stocks were expected to drop 200,000 barrels. Refinery utilization was seen dropping 0.4 percentage point to 80.9% of capacity.
The prospect of large draws on oil and fuel inventories was one of the few factors supporting oil prices Thursday morning, as the economic outlook in the U.S. and China, the two largest oil consumers, had dimmed this week. China moved to tighten lending on Wednesday in an effort to fight rising inflation, while new U.S. unemployment claims unexpectedly rose Thursday.
Strong economic growth--and rising energy demand--in both countries is seen as essential to reducing global crude and fuel inventories this year, justifying $80 a barrel oil.
A fire at an oil storage facility in Cushing, Okla., the delivery point for the Nymex contract, did not appear to impact prices. The fire, which was extinguished earlier Thursday was isolated to one tank and affected a small amount of crude, according to Pete Schwiering, president of SemCrude, a division of SemGroup Corp., which operates the tank.
Front-month February reformulated gasoline blendstock, or RBOB, recently traded 1.24 cents, or 0.6%, lower at $2.0341 a gallon. February heating oil traded 73 points, or 0.4%, lower at $2.0138 a gallon.
