April 14 (Bloomberg) -- Oil surged after a U.S. government...

April 14 (Bloomberg) -- Oil surged after a U.S. government report showed an unexpected decline in supplies as gasoline demand increased by the greatest amount in five years.

This is the first time in weeks that weve actually had a drawdown in oil, and thats having a bullish effect, said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. Traders are focused on the improving economic picture. They think oil prices will move higher.

Crude oil for May delivery gained $1.79, or 2.1 percent, to settle at $85.84 a barrel on the New York Mercantile Exchange, ending a five-day decline. Prices rose the most since March 29. Futures have gained 74 percent in the past year.

Oil stockpiles were 5.1 percent above the five-year average in the week ended April 9, down from 7.1 percent the week before, the Energy Department said. Supplies dropped as refinery utilization advanced 1.1 percentage points to 85.6 percent of capacity. Imports of oil fell 7.1 percent to 8.88 million barrels a day.

Gasoline Demand

U.S. gasoline consumption climbed 119,000 barrels in the four weeks ended April 9 to 9.14 million barrels a day, according to the Energy Department. Its the highest level since October. Gasoline for May delivery jumped 2.34 cents, or 1 percent, to $2.3327 a gallon.

The industry-funded American Petroleum Institute reported yesterday that U.S. crude stockpiles rose 1.41 million barrels last week. It was the seventh straight gain in API oil stockpiles.

Oil also increased as the Standard & Poors 500 Index advanced to the highest level since September 2008 and sales at U.S. retailers climbed, signals that demand may improve with the economy.

The S&P 500 rose 1.1 percent to 1,210.65, and the Dow Jones Industrial Average gained 103.69 points, or 0.9 percent, to 11,123.11 on greater-than-estimated profits by Intel Corp. and JPMorgan Chase & Co., which bolstered confidence that a six-week equities rally was justified.

Economic Barometers

The equity markets and earnings reports are barometers of economic activity and economic recovery, said John Kilduff, a partner at Round Earth Capital, a New York-based hedge fund that focuses on food and energy commodities. As they go, so goes energy demand.

U.S. purchases increased 1.6 percent in March, the most in four months, the Commerce Department reported in Washington. It also revised up retail sales numbers for February and January, and the Labor Department reported that consumer prices rose 0.1 percent last month.

The CPI shows absolutely no inflation whatsoever, which keeps interest rates at zero, and the investor in oil loves that idea of financing his long oil futures at zero percent interest, said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida.

Federal Reserve policy makers last month pledged to keep the benchmark interest rate near zero in coming months to fuel the economy.

Interest Rates

The Federal Open Market Committee has stated clearly it will keep the main interest rate low for an extended period, contingent on conditions including high unemployment and low inflation, Fed Chairman Ben S. Bernanke said today in testimony before Congress.

The U.S. expansion will remain moderate amid weak construction spending and high unemployment, he said.

The dollar fell to a four-week low against the euro, bolstering crude oil. The U.S. currency declined 0.3 percent to $1.3658 from $1.3614 yesterday. A weaker dollar makes commodities more attractive as an alternative investment.

OPEC cut estimates of demand for its own crude in 2010 as production outside the group accelerated.

The Organization of Petroleum Exporting Countries, which supplies about 40 percent of the worlds oil, predicts members will need to produce 28.81 million barrels of crude a day to satisfy demand for the year, according to its monthly oil market report. Thats about 135,000 barrels a day less than last months projection. The producer group left its forecast for world oil demand in 2010 little changed.

Brent crude for May settlement gained $1.43, or 1.7 percent, to $86.15 a barrel on the London-based ICE Futures Europe exchange.

Oil volume in electronic trading on the Nymex was 1.05 million contracts as of 3:24 p.m. in New York. Volume reached a record 1.42 million contracts yesterday, more than double the average of the past three months. It has topped 1 million contracts a day in the past four sessions. Open interest was 1.39 million contracts yesterday.

http://www.businessweek.com/news/2010-04-14/crude-oil-rises-as-equities-gain-u-s-retail-sales-increase.html