Crude oil futures fell for a second day after a U.S. government report showed an unexpected increase in inventories to the highest level in two years. Crude dropped as much as 1.8 percent after the Energy Department said supplies climbed 2.88 million barrels to 373.8 million in the week ended May 27, the highest level since May 2009. Inventories were forecast to decline by 1.6 million barrels, according to the median of 13 analyst estimates in a Bloomberg News survey. Gasoline inventories also gained. “The build in crude oil was the largest surprise in the data, and bearish news is prompting selling,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The report showed the gasoline market is well-supplied.” Crude oil for July delivery decreased $1.59, or 1.6 percent, to $98.70 a barrel at 12:07 p.m. on the New York Mercantile Exchange. Oil traded at $100.42 a barrel before the release of the inventory report at 11 a.m. in Washington. Brent crude for July delivery declined 64 cents, or 0.6 percent, to $113.89 a barrel on the London-based ICE Futures Europe exchange. Gasoline inventories increased for a fourth week, climbing by 2.55 million barrels to 212.3 million, the Energy Department said. Analysts expected a gain of 900,000 barrels, according to the Bloomberg survey. ‘Very Bearish’ “The fact that there is a quite large build in gasoline seems very bearish,” said Sean Brodrick, a natural resource analyst with Weiss Research in Jupiter, Florida. Distillate stockpiles, which include diesel and heating oil, fell 976,000 barrels to 140.1 million, the lowest level since April 2009. Analysts expected a withdrawal of 250,000 barrels. “Refiners are not making distillates because they intentionally want to bring inventories down to a more manageable, healthier level and because they don’t see demand,” said Evans. Inventories at Cushing, Oklahoma, the delivery point for West Texas Intermediate oil traded on the Nymex, dropped 159,000 barrels to 39.9 million, department data showed. The rate at which refineries operated fell to 86 percent from the previous week’s 86.3 percent. “Overall, the numbers are quite bearish,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “I am looking for prices to fall to $95 by next week.” The industry-funded American Petroleum Institute said yesterday crude supplies rose 3.5 million barrels to 371.6 million. Jobless Claims Crude also declined as the Labor Department reported more Americans than forecast filled applications for unemployment benefits last week. Jobless claims fell by 6,000 to 422,000 in the week ended May 28, Labor Department data showed, more than the 417,000 decline estimated by economists in a Bloomberg News survey. Economists in a Bloomberg News survey project a government report tomorrow may show payroll gains weakened in May, raising the risk that consumers will curb spending, the biggest part of the economy. Orders placed with U.S. factories dropped 1.2 percent in April, the biggest decrease since May 2010, figures from the Commerce Department showed today in Washington. Economists projected a 1 percent decline in April, according to a Bloomberg News survey. Deer Park Refinery Royal Dutch Shell Plc (RDSA) is restarting units at its refinery in Deer Park, Texas, after a steam loss, according to Jill Davis, a spokeswoman for Shell in Houston. The refinery can process 340,000 barrels of crude a day, according to the company’s website. The Organization of Petroleum Exporting Countries will respond at its June 8 meeting in Vienna if there is demand for more oil production, Saudi Arabian Oil Minister Ali Al-Naimi said. The Middle East kingdom has 3 million to 3.5 million barrels a day of spare production capacity, Al-Naimi told reporters today in Krakow, Poland. OPEC’s output rose 165,000 barrels, or 0.6 percent, to average 28.895 million barrels a day in May, according to a Bloomberg News survey of oil companies, producers and analysts. Saudi Arabia bolstered production by 75,000 barrels, or 0.8 percent, to 8.925 million barrels a day, the highest level since October 2008. HSBC Holdings Plc said speculative trading may have added $30 a barrel to oil prices last month as a gain in futures holdings by commodities funds outweighed higher production by Saudi Arabia, OPEC’s biggest producer. Oil rose as much as 0.6 percent earlier as the euro strengthened against the dollar to the highest level in four weeks after German Chancellor Angela Merkel said she is committed to the currency. Euro Strengthens The euro gained 0.7 percent to $1.4426 as of 12:01 p.m. after increasing to $1.4486, the strongest level since May 6. A decline in the U.S. currency makes dollar-priced assets such as crude appear cheaper to investors using other currencies. To contact the reporter on this story: Moming Zhou in New York at Mzhou29@bloomberg.net To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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