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Crude Tumbles Amid Equity Selloff as U.S. Output Climbs

West Texas Intermediate oil fell to a four-month low as equities declined and U.S. output rose to a 20-year high. Brent slid below a key technical level at $97.91.

WTI dropped for the fourth time in five days as U.S. stocks tumbled on disappointing corporate earnings and after the dollar strengthened against the euro. Output was 7.2 million barrels a day, the most since July 1992, and fuel use slid, according to the Energy Information Administration, the Department of Energy’s statistical arm. Brent breached the 23.6 percent Fibonacci retracement level from 2012’s low to the year’s high.

“It’s a big panic in the market,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Equities are getting beat up and the DOE report is certainly not helping. That $97.91 is a crucial number. Losses accelerated as soon as we broke down that number.”

WTI for May delivery fell $2.04, or 2.3 percent, to $86.68 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 14. The volume of all futures traded was 44 percent above the 100-day average for the time of day at 3:16 p.m. in New York. Prices have tumbled 8.4 percent since April 10.

Implied volatility for at-the-money WTI options expiring in June was 28 percent, heading for the highest level this year. It was up from 24.7 percent yesterday.

Brent for June settlement slipped $2.22, or 2.2 percent, to end the session at $97.69 a barrel on the London-based ICE Futures Europe exchange, the lowest level since July 2. Volume was 21 percent above the 100-day average. Futures have dropped 8 percent in the past six days.

June Brent’s premium over the same-month WTI narrowed to $10.72 from yesterday’s $10.88.

Equities Slump

The Standard & Poor’s 500 Index slumped as much as 2 percent as earnings from companies Bank of America Corp. to Textron Inc. (TXT) missed analysts’ estimates. The S&P’s GSCI Index of 24 commodities dropped as much as 1.8 percent, with the biggest declines in base metals and energy.

The dollar advanced as much as 1.3 percent to $1.3002 per euro, the strongest level since February. A rising dollar and weaker euro reduce dollar-denominated oil’s appeal as an investment alternative.

“Equities continue to be weak and the dollar is strong,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “They are the primary drivers of the oil market now.”

U.S. Production

U.S. oil output gained 0.4 percent in the week ended April 12, the EIA reported. Gasoline consumption dropped for a second week to 8.38 million barrels a day. Demand for distillate fuels, including diesel and heating oil, tumbled 5.9 percent to 3.63 million barrels a day.

“Product demand shrank,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “It’s adding some selling pressure to oil. The report is bearish. With the equity market down and the stronger dollar, the oil market is under pressure today.”

U.S. stockpiles decreased 1.23 million barrels to 387.6 million last week, the EIA said. They were at the highest level since July 1990 in the prior week. Analysts surveyed by Bloomberg had expected a gain of 1.2 million.

Imports of crude oil slumped 3.7 percent to 7.43 million barrels a day.

“The crude draw is primarily associated with lower imports,” Cooper said. “Inventories are actually still pretty high. Certainly the crude production number is bearish and demand is poor.”

API Report

The industry-funded American Petroleum Institute said yesterday that stockpiles slid 6.66 million barrels last week. The API collects stockpile information on a voluntary basis while the government requires that reports be filed with the EIA for its weekly survey.

“Even though the crude inventory was down, it was not nearly as bad as what the API released yesterday,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. The EIA “report gives no reason to stop the downward trend.”

BNP Forecast

BNP Paribas SA (BNP) cut its 2013 forecasts for Brent and WTI to reflect the price drop in the first quarter, Harry Tchilinguirian, BNP’s head of commodity markets strategy in London, said in an e-mailed report. “Loose” global monetary policy and political threats to supply will support prices in the second half of the year, he said.

BNP trimmed its 2013 Brent estimate to $108 a barrel from $115 and WTI to $95 from $100, while advising investors to bet on a rebound in the second half of the year.

“Fundamentally, we should be at these prices or maybe even a little bit lower,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “Prices should be trading around $85. We are seeing the dollar up and equities down, and that’s definitely putting some pressure on crude.”

Electronic trading volume on the Nymex was 664,602 contracts as of 3:19 p.m. It totaled 733,796 contracts yesterday, 25 percent above the three-month average. Open interest was 1.76 million contracts.

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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