West Texas Intermediate crude fell to a four-week low on concern that the Federal Reserve will cut debt purchases as the economy of the world’s biggest oil-consuming nation strengthens.
Futures dropped 2 percent and global equities declined. The U.S. auctioned $35 billion of five-year notes as the highest yields in 13 months attracted buyers. That was the first offering since Fed Chairman Ben S. Bernanke said last week the central bank could curb the pace of its buying if growth accelerates. OPEC won’t change its output target at a meeting this week, delegates said.
“Equities are getting pummeled and oil is taking a hit as well on concerns about the Fed,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Once again, Ben Bernanke is a bigger determinate of what happens in the oil market than OPEC.”
WTI crude for July delivery slid $1.88 to $93.13 a barrel on the New York Mercantile Exchange, the lowest settlement since May 1. The volume of all futures traded was 4.6 percent above the 100-day average for the time of day at 4:33 p.m.
Prices decreased after the American Petroleum Institute reported that U.S. inventories gained 4.4 million barrels to 395.1 million, the highest level since July 1981. The July contract fell $2.12 to $92.89 a barrel in electronic trading at 4:54 p.m. The contract traded at $93.14 before the report was released at 4:30 p.m.
Brent oil for July settlement fell $1.80, or 1.7 percent, to settle at $102.43 a barrel on the London-based ICE Futures Europe exchange. Volume for all contracts was 23 percent lower than the 100-day average.
The European benchmark grade traded at a $9.30 premium to WTI futures, the widest level based on closing prices since May 15. It ended at $9.22 yesterday.
The Standard & Poor’s 500 Index and the Dow Jones Industrial Average both dropped 0.7 percent. European stocks also slipped, with the Stoxx Europe 600 Index falling 1.9 percent. Ten-year Treasury yields retreated from the highest level in more than a year.
“We’re looking at the prospect of the Fed reducing stimulus sooner, rather than later,” said Phil Flynn, a senior market analyst for Price Futures Group in Chicago. “This doesn’t bode well for the oil market and demand.”
The Organization of Petroleum Exporting Countries will keep its production limit at 30 million barrels a day at a May 31 meeting in Vienna, said two delegates who asked not to be identified because the decision isn’t yet final.
While all but one of 20 analysts in a Bloomberg survey predict the 12-member organization will maintain its target at the meeting, most say OPEC needs to conform better with the limit to avoid a glut.
The current oil price is suitable for producers and consumers, Saudi Arabia’s petroleum minister, Ali al-Naimi, said today, according to the state-run Saudi Press Agency. The kingdom is the world’s biggest crude exporter.
Prices also declined as the International Monetary Fund cut its growth projections for China. The nation needs to make “decisive” policy changes that would put the economy on a more sustainable path, David Lipton, first deputy managing director of the IMF, said today at a press briefing in Beijing after concluding an annual review of the country.
The IMF said China will expand about 7.75 percent this year and next. In April, the fund forecast Chinese growth of 8 percent this year and an 8.2 percent expansion in 2014.
“The Chinese IMF forecast is gloomy for the market,” Flynn said. “It’s Chinese growth that has been driving the market and demand higher in recent years.”
Futures climbed from the day’s low after the Organization for Economic Cooperation and Development forecast that global growth will accelerate in 2014 with both the U.S. and Japan continuing to outpace the euro area.
“The most important factor today is the IMF downgrade of Chinese growth prospects, which is a negative for the consumption outlook of the swing demand nation,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Countering it somewhat is the positive OECD outlook for U.S. and Japanese growth next year.”
U.S. gross domestic product will rise 1.9 percent this year and 2.8 percent in 2014, while Japan’s will climb 1.6 percent and 1.4 percent, the OECD said. The euro-area economy will shrink 0.6 percent this year before expanding 1.1 percent next, according to the adviser.
An Energy Information Administration report tomorrow will probably show that U.S. crude supplies fell 500,000 barrels last week, according to the median of 11 responses in a Bloomberg survey. Gasoline inventories slipped 500,000 barrels while stockpiles of distillate fuel, a category that includes heating oil and diesel, decreased 450,000 barrels, the survey showed.
“The IMF downgrade of China’s economic growth prospects set the tone for the market,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We aren’t expecting the data to be very dramatic this week.”
Implied volatility for at-the-money WTI options expiring in July was 22.3 percent, compared with 21.3 yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 549,818 contracts as of 4:35 p.m. It totaled 494,101 contracts yesterday, 16 percent below the three-month average. Open interest was 1.74 million contracts.
To contact the reporter on this story: Mark Shenk in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Dan Stets at email@example.com