Oil Declines on Forecast of Drop in U.S. Refinery Operations
Oil fell to the lowest level this month before a government report that may show U.S. refineries operated at their lowest rate in five months, signaling less demand for crude to process into fuels.
Refineries ran at 86.8 percent of capacity last week, according to the median estimate of 17 analysts in a Bloomberg News survey. Petroleum supplies in the U.S., the world’s largest oil consumer, are near the highest level in 20 years. The Energy Department will release last week’s data at 10:30 a.m. tomorrow in Washington.
“We’re seeing some reluctance from the refinery sector to buy crude, given high product stocks,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We’re still waiting to get some news which suggests we’re getting a recovery.”
Crude for October delivery dropped $1.34, or 1.8 percent, to settle at $73.52 a barrel on the New York Mercantile Exchange, the lowest closing price since Aug. 31. October futures expired at the close of floor trading. The more-active November contract lost $1.22, or 1.6 percent, to $74.97.
November prices declined from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles increased 2.23 million barrels to 364.1 million, the highest level in almost four months. The contract fell $1.46, or 1.9 percent, to $74.73 a barrel in electronic trading at 4:31 p.m.
Crude Supplies
U.S. crude supplies probably slipped 1.75 million barrels from 357.4 million, according to the survey. Gasoline stockpiles dropped 25,000 barrels from 224.5 million, and stockpiles of distillate fuel, including heating oil and diesel, grew by 100,000 barrels last week, the first increase in four weeks, the survey showed.
Oil’s decline “seems like some expiration excitement, and it’s been inspired by that glut of supply we have,” said Phil Flynn, vice president of research at PFGBest in Chicago. Overall petroleum supplies, a combination of oil and other fuels, slipped 0.3 percent last week from a 20-year high to 1.14 billion barrels. Inventories rose for the prior 13 weeks.
U.S. gasoline demand rebounded from a 23-month low last week, MasterCard Inc. reported today. Motorists bought an average 9.01 million barrels a day of the motor fuel, up 1.9 percent from the prior week, according to the weekly SpendingPulse report. It was the first increase in five weeks.
Gasoline for October delivery lost 3 cents, or 1.5 percent, to settle at $1.9196 a gallon on the Nymex.
Federal Reserve
Federal Reserve policy makers meeting in Washington said they are willing to ease monetary policy further to boost the economy and lower unemployment. The Federal Open Market Committee today refrained from expanding holdings of securities.
“The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate,” the FOMC said today in a 2:15 p.m. statement.
The National Bureau of Economic Research, the accepted arbiter of when economic slumps start and end, said the longest and deepest U.S. recession since the Great Depression ended in June 2009.
Payrolls dropped in 36 U.S. states in August, indicating the labor market will take time to rebound from the recession, figures from the Labor Department showed today in Washington.
Housing starts increased more than forecast in August, as builders began work on 598,000 homes, at an annual rate. That’s up 10.5 percent and the most since April, according to the Commerce Department.
Brent Crude
Brent crude oil for November settlement lost 90 cents, or 1.1 percent, to $78.42 a barrel on the London-based ICE Futures Europe exchange. Brent’s premium to the New York November contract strengthened to $3.45 a barrel from $3.13 yesterday.
The price spread has widened as growing U.S. inventories and the restart of an Enbridge Energy Partners LP crude pipeline weighed on New York futures. U.S. oil supplies were 13 percent above the five-year average in the week ended Sept. 10, according to the Energy Department.
The higher inventories have also made Nymex oil for near- term delivery less expensive than oil in future months, a condition known as contango.
“There’s a lot of bleeding in the October contract, a lot of people caught long when you had the pipeline problem,” said Fred Rigolini, vice president of Paramount Options Inc. in New York.
Enbridge Pipeline
Enbridge started its 6A oil pipeline, the largest conduit linking Canada and to refiners in the Midwest, on Sept. 17 after a leak in Illinois on Sept. 9 shut the line.
“The restart of Enbridge pipeline supplies to the Midwest has restored crude supplies from Canada, and WTI November futures have rapidly slumped to a fresh record discount against the corresponding Brent futures,” Lawrence Eagles, head of commodities research at JPMorgan Chase & Co. in New York, said in a report today.
Oil volume in electronic trading on the Nymex was 629,188 contracts as of 3:12 p.m. in New York. Volume totaled 651,870 contracts yesterday, 3.3 percent above the average of the past three months. Open interest was 1.34 million contracts, the lowest level in a week.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.
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