Oil output surge prompts supply gain in survey

, Bloomberg

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U.S. crude oil inventories probably increased last week after production reached a 20-year high and refineries lowered their operation levels.

Stockpiles rose by 2.15 million barrels, or 0.6 percent, to 362.5 million in the seven days ended Jan. 18, according to the median of 10 analyst estimates before an Energy Information Administration report tomorrow. All respondents forecast a gain.

Domestic production grew in 18 of the last 19 weekly EIA reports, helped by output from shale formations. The refinery utilization rate dropped last week for a third time, the Bloomberg survey showed. Inventories at Cushing, Oklahoma, may have decreased from a record high as the Seaway pipeline resumed service at an expanded capacity.

"There is lots of drilling and lots of production," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said Tuesday by phone. "There is no shortage of oil in the U.S. I see relatively weak refinery runs."

Production increased 0.6 percent in the week ended Jan. 11 to 7.04 million barrels a day, the most since Jan. 22, 1993, the EIA, the Energy Department's statistics arm, said last week. Output has gained 1.56 million barrels a day, or 28 percent, since the end of August.

Oil Production

A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in states including North Dakota, Texas and Oklahoma. North Dakota's output jumped 40 percent in the first 10 months of 2012, according to the EIA.

Increasing output in the U.S. and Canada has bolstered supplies at Cushing, the delivery point for WTI traded in New York. Stockpiles at the hub rose 1.78 million barrels to a record 51.9 million in the seven days ended Jan. 11, gaining for a sixth week.

Inventories may have declined last week after Enterprise Products Partners LP and Enbridge Inc. restarted the Seaway pipeline running from Cushing to the Gulf Coast on Jan. 11 at a capacity of 400,000 barrels a day, up from 150,000 barrels.

"We look for Cushing stocks to show the first of many draws now that the expansion in the Seaway pipeline has been completed," Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois-based consulting company, said Tuesday in a note to clients. "We're expecting a drop of about 500,000 barrels."

Cushing Supply

Cushing stocks may keep falling as TransCanada Corp. said it expects to pump 700,000 barrels a day to the Houston area from the hub by late 2013 on the southern leg of its Keystone XL pipeline, on which construction began in August.

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