Energy Prices Climb on Dropping Inventories

Energy prices rallied yesterday after the government reported a surprising drop in US stockpiles of gasoline and distillates such as heating oil and diesel fuel.

Other commodities finished mixed as gold and silver prices slipped, industrial metals made modest gains and agriculture product prices reacted to changing weather patterns, The Associated Press reported.

The Energy Information Administration yesterday reported the nation's gasoline inventories fell by 700,000 barrels, bucking analysts' consensus forecast for a build of more than 1 million barrels. At 202.6 million barrels total, gasoline stocks stand well below the average level for this time of year.

Distillate stocks, which include heating oil and diesel fuel, also declined despite market expectations for an increase. The summer is typically a key time for the market to grow heating oil inventories, and the surprise draw bolstered prices.

Although the report showed a larger-than-expected rise in crude oil inventories, improving rates of refinery utilization indicated that demand for crude will soon start to climb, said Man Financial analyst Andrew Lebow. US refinery use rose to 89.4 percent last week from 87.6 percent a week earlier.

"As refinery runs continue to increase -- and they will -- we should be looking at some fairly significant crude stock draws in coming weeks," Lebow said. "I think the market in crude is looking beyond this week's report and viewing that as supportive."

Light, sweet crude for August delivery picked up US$1.20 to settle at US$68.97 a barrel on the New York Mercantile Exchange. Gasoline futures rose less than one cent to close at US$2.2546 a gallon, while heating oil added 3.13 cents to US$2.0246 a gallon.

Elsewhere on the Nymex, gold prices wavered between modest gains and losses yesterday but ultimately failed to recover from Tuesday's steep fall. A strengthening US dollar pressured prices, canceling support from a dip in the yield on the Treasury's 10-year note.

Gold for August delivery dropped 50 cents to settle at US$644.80 an ounce on the Nymex yesterday, a day after prices touched their lowest level since mid-January. Silver also fell, with the July contract shedding 7 cents to end at US$12.21 an ounce.

Overseas, copper prices nudged higher on news that workers at Europe's largest copper miner, Poland's KGHM, will vote on a potential strike, while workers at a Southern Copper Corp mine in Peru continued their strike, according to Dow Jones Newswires.

The other industrial metals edged less than 1 percent higher on the London Metal Exchange, except for zinc, which closed the session down 1.5 percent. Nymex copper rose 4.35 cents to settle at US$3.357 a pound.

In Chicago, corn prices recoiled amid reports that rains have finally reached the parched eastern Corn Belt. The market also looked ahead to an upcoming report from the US Department of Agriculture, due out Friday, which will show how many acres of land farmers dedicated to corn this year.

In March, the USDA had reported that farmers intended to plant 90.5 million acres of corn -- the most since 1944. Market analysts expect Friday's report of the acreage actually planted to be even higher, at about 91 million acres, said DTN analyst Elaine Kub.

Those expectations also took their toll on prices. Corn for July delivery dropped 12.6 cents a bushel to settle at US$3.436 on the Chicago Board of Trade.

In the wheat market, too much rain in Texas and Oklahoma continued to inflame concerns about wheat supplies and briefly sent prices to a new 10-year high above US$6.25 a bushel. The July contract fell back before the close, however, ending down 2.4 cents to US$6.06 a bushel.

July soybeans followed the others lower, falling 3.4 cents to close at US$8.034 a bushel.