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19 julio 2007

Gas and Oil Futures Rally on Surprise Inventory Report

Energy Department's Energy Information Administration said gasoline inventories dropped by 2.3 million barrels last week, countering analyst predictions of a 560,000-barrel increase.

"They weren't expecting that whatsoever," said Jack Hunter, an energy trader at FC Stone Group, in Kansas City.

In response, August gasoline rose 9.46 cents to settle at $2.1953 a gallon on the New York Mercantile Exchange. Light, sweet crude for August delivery gained $1.03 to settle at $75.05 a barrel on the Nymex, a front-month contract's first close over $75 since Aug. 9.

Prices also got a boost after the American Petroleum Institute said a record 388 million gallons of gasoline on average every day was consumed during the first half of the year, up 1.5 percent from last year, despite higher prices.

James Cordier, president of Liberty Trading Group in Tampa, Fla., called Wednesday's rally a "knee-jerk" reaction to the gasoline inventory number. He thinks the large investment funds that often sway commodities markets are looking much more closely at refinery utilization rates, which rose 0.8 percent to 91 percent. Analysts surveyed by Dow Jones Newswires, on average, had expected an 0.5 percent increase.

"That's the entire key to prices going forward," Cordier said.

Gas futures have fallen nearly 27 cents over the last five sessions, since last week's inventory report showed growth in both gas inventories and refinery utilization.

At the pump, meanwhile, retail gas prices fell another 0.9 cent overnight to a national average of $3.031 a gallon, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, have fallen since the weekend after having been driven higher by Midwest refinery outages. Gas prices peaked at $3.227 a gallon in late May.

Brent crude futures for September rose $1.23 to settle at $76.76 on London's ICE Futures exchange.

Wednesday's report also showed crude oil inventories fell by 500,000 barrels in the week ended July 13, below analyst expectations for a 760,000-barrel decrease. Distillate stocks, which include heating oil and diesel fuel, fell by 200,000 barrels. Analysts had expected an increase of 780,000 barrels.

A big drop in imports and a decline in gasoline production were behind the shrinking gas inventories. Gasoline imports plummeted by 508,000 barrels a day to an average of 915,000 barrels a day last week. Gas production fell by 64,000 barrels to 9.2 million barrels a day.

Imports of crude oil grew by 350,000 barrels per day to an average of 10.4 million barrels a day.

Demand for gasoline, meanwhile, grew 1.3 percent over a year ago.

Gasoline futures also found support Wednesday when Valero Energy Corp. shut down a piece of gasoline production equipment after a malfunction, Hunter said. But Valero later said the equipment would be quickly returned to service, and that gasoline production will not be affected.

Crude oil has rallied in recent days despite the decline in gas futures. Analysts blame speculative buying, but concede that supply concerns are also a factor. An opposition group in Nigeria, Africa's largest oil producer and a key supplier to the U.S., is calling for the shutdown of an oil pipeline. And Japan may need to increase its use of oil to compensate for the loss of power from a nuclear plant shut down after Monday's earthquake.

Still, many analysts doubt the rally can continue. While gasoline futures were up Wednesday, they're still off sharply from a week ago.

"Everyone knows the funds are selling," said Hunter.