U.S. gasoline supply fears inflate oil prices

Oil prices stormed higher on Wednesday as U.S. gasoline stocks sank for the sixth straight week, heightening fears of a supply crunch later this year when American drivers hit the road for summer vacations.
Bellwether Brent for May delivery crude rose 55 cents to $25.32 a barrel and U.S. light crude traded $1.01 firmer at $27.20 a barrel after brushing an 11-month low of only one day before. In two days it has risen 6.3 percent.

Dealers said crude's gains were the result of worries over lean gasoline inventories in the United States, where pump prices hit record levels last year.

``We've been behind the curve in making summer gasoline all along and now we're heading into the season, people are finding out there is not enough around,'' said Tom Bentz of BNP Paribas Commodity Futures.

Industry group the American Petroleum Institute (API) reported a sharp 4.27 million draw in gasoline tanks to just over 192 million barrels late on Tuesday. The market had expected a draw of just 500,000 barrels.

The U.S. Department of Energy's statistical arm, the Energy Information Administration (EIA), confirmed the reinvigorated bullish sentiment on Wednesday by reporting a 3.3 million barrel drop in gasoline stocks.

National inventories are now about 10 million barrels below a year ago, when supply proved inadequate to meet peak consumption in the summer months, and 10 percent below levels in 1999. Stocks are 14 million barrels, seven percent, below the five-year average for this time of year.

The API said U.S. stocks of clean-burning reformulated gasoline (RFG) dropped 1.9 million barrels to 36 million, a 2.4 million barrel shortfall versus this time last year.

Stronger spring demand and lower refinery production, with some plants slow to return from maintenance stoppages, were largely responsible for the decline.

But some refiners also are running shy of making reformulated gasoline for fear of violating patents owned by Unocal Corp (NYSE:UCL - news). The anti-smog gasoline was in short supply last year and was the trigger for the run-up in prices.

``The danger here is that the U.S. gasoline market moves into a political and economic battle against RFG and the Unocal patents that threatens a massive supply disruption in the U.S.,'' said Lawrence Eagles of brokers GNI.

The API data's bullish impact was sharpened by a smaller than predicted 0.56 million barrel build in U.S. crude stocks to 303.2 million barrels, while distillates -- heating oil and diesel -- were off 3.9 million barrels at 106.45 million.

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