Oil Falls to Lowest Level in Six Weeks as Supplies Surge

Oil tumbled to a six-week low after U.S. crude inventories surged the most since March as production and imports rebounded from Hurricane Isaac.

Futures decreased 3.5 percent after the Energy Department said supplies rose 8.53 million barrels last week, more than eight times what was projected in a Bloomberg survey. Imports arrived at the highest rate since January and output increased. Crude fell earlier on speculation Saudi Arabia is moving to reduce prices.

“This is a massive build in supplies,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “We were already moving lower because of the Saudi headlines and this number is adding to the bearish sentiment.”

Crude oil for October delivery declined $3.31 to $91.98 a barrel on the New York Mercantile Exchange, the lowest settlement since Aug. 3. It was the biggest drop since July 23. Futures are down 6.9 percent this year.

Brent oil for November settlement fell $3.84, or 3.4 percent, to $108.19 a barrel on the London-based ICE Futures Europe. It was the lowest close since Aug. 2. Brent, a benchmark for more than half of the world’s oil, has risen from $89.23 on June 21, which was the lowest settlement since December 2010.

Crude oil inventories rose the most since March 30 to 367.6 million barrels, a six-week high. Analysts surveyed by Bloomberg predicted an advance of 1 million. Imports of crude oil climbed 15 percent to 9.85 million barrels a day. Production advanced 14 percent to 6.28 million barrels a day.

Fuel Inventories

Stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, declined. Refinery operating rates rose to 88.9 percent from the previous week’s 84.7 percent as plants restarted units idled during the hurricane.

Isaac hit Louisiana as a Category 1 hurricane in the last week of August. The storm’s path through Gulf of Mexico energy rigs and platforms closed as much as 95 percent of the region’s oil production, according to the U.S. Bureau of Safety and Environmental Enforcement.

Total fuel use decreased 0.6 percent to 18.6 million barrels a day in the four weeks ended Sept. 14, the lowest level since the week ended June 1. Gasoline consumption dropped 1.2 percent to 8.89 million barrels a day during the same period.

Saudi Arabia is pumping about 10 million barrels a day of crude and will produce more if customers demand it, a Persian Gulf official with knowledge of the matter said yesterday.

OPEC Price

The ideal price of crude for OPEC is $100 a barrel and current prices are not supported by the fundamentals, the official said, declining to be identified because he’s not authorized to speak publicly. The oil market is well balanced and more supply is on the way, while demand growth won’t exceed 800,000 barrels a day in 2013, the official said.

The OPEC basket price of 12 crudes was $110.95 a barrel yesterday, down from $113.72 on Sept. 17.

Saudi Arabia is producing near the highest level in more than three decades. Its output has boosted supply from the Organization of Petroleum Exporting Countries to 1.63 million barrels a day more than the world needs this year, the group’s Sept. 11 monthly report showed.

Oil Minister Ali al-Naimi said Sept. 10 that global supply, demand and inventories don’t justify current prices. The desert kingdom has worked with the United Arab Emirates and Kuwait, fellow members of the six-nation Gulf Cooperation Council, to raise output as U.S. sanctions penalized customers buying Iranian oil, the official said.

Four-Month High

Oil climbed to the highest level in more than four months on Sept. 14 after the Federal Reserve’s plan to buy mortgage securities bolstered economic optimism and on concern that protests against a film seen as insulting to Islam may lead to supply disruptions in the Middle East and North Africa.

“There was initial euphoria about the Fed move that sent the market higher last week,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “The economic picture isn’t healthy enough to support prices near triple digits.”

The Fed announced on Sept. 13 that it would make additional purchases of debt in a third round of so-called quantitative easing. The move followed a European Central Bank bond-buying announcement on Sept. 6.

“The fundamentals aren’t supportive,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Prices were getting uplift over the last couple weeks from the EU and U.S. quantitative easing, the anti-Islamic video and maintenance in the North Sea. These three factors are no longer enough to prop up the market.”

Daily exports of the four crude grades comprising the Dated Brent benchmark will rise 24 percent in October, the biggest monthly increase in two years, as offshore maintenance work ends, according to data compiled by Bloomberg.

Electronic trading volume on the Nymex was 737,094 contracts as of 4:10 p.m. Volume totaled 545,299 contracts yesterday, 1 percent higher than the average of the past three months. Open interest was 1.61 million.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets in New York at dstets@bloomberg.net.

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