Oil Drops to One-Month Low as OPEC Keeps Output Target

West Texas Intermediate crude fell to a one-month low as OPEC kept its output target unchanged for a third consecutive time and U.S. inventories climbed to the highest level in 82 years.

Futures dropped 1.8 percent after the Organization of Petroleum Exporting Countries maintained its objective of 30 million barrels a day at a meeting in today in Vienna. Ministers from the 12-member group will next gather on Dec. 4. U.S. crude supplies increased 3 million barrels to 397.6 million last week, the most since 1931, a government report showed yesterday. The decline in prices accelerated in the last hour of floor trading as equities moved lower.

“Prices are down because of OPEC’s decision to roll over the quota,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “They needed to cut back, given rising supplies and the demand outlook, but pushed the problem off until December.”

WTI crude for July delivery declined $1.64 to $91.97 a barrel on the New York Mercantile Exchange, the lowest settlement since May 1. The volume of all futures traded was 9 percent above the 100-day average for the time of day at 2:55 p.m. Prices slid 2.3 percent this week and 1.6 percent in May.

Brent oil for July settlement fell $1.80, or 1.8 percent, to end the session at $100.39 a barrel on the London-based ICE Futures Europe exchange, the lowest close since May 1. Prices decreased 2.2 percent this week and 1.9 percent in May. Volume for all contracts was 15 percent below the 100-day average.

The European benchmark grade traded at a $8.42-a-barrel premium to WTI futures, compared with $8.58 yesterday. The spread narrowed for a third month.

Agreeable Meeting

OPEC members are “happy because Brent is over $100 a barrel,” said Phil Flynn, a senior market analyst for Price Futures Group in Chicago. “If it were any lower, it would have been a much more contentious meeting.”

The organization has no formal target for prices, the group’s secretary-general, Abdalla El-Badri, said at a news conference in Vienna after the ministers’ meeting.

“I said in March $100 is a reasonable price,” Saudi Arabian Oil Minister Ali al-Naimi said earlier today. “Where are the prices today? They are still at the reasonable level.”

Most member states also expressed their support for $100 oil. Some, including Venezuela, voiced concern over excessive production by other members, with OPEC pumping about 1 million barrels a day more than the informal target.

“It’s a very close call these days and OPEC will have to stay actively engaged in the months ahead,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Massachusetts. “They will have to keep an eye on things and if necessary call an emergency meeting.”

Surging Output

U.S. crude production rose 34,000 barrels a day to 7.29 million last week, the Energy Information Administration, the Energy Department’s statistical arm, reported yesterday. Output reached 7.37 million barrels a day in the week ended May 3, the most since February 1992. Production has surged as horizontal drilling and hydraulic fracturing, or fracking, have unlocked supplies trapped in shale formations in the central U.S.

“It’s a new world right now,” Flynn said. “Eventually, OPEC will have to come to terms with the rise in production here and in other nations.”

OPEC has formed a committee to examine the impact of U.S. shale oil, an admission that the burgeoning supply is worrying some of its members.

‘Tenuously Balanced’

“The market is tenuously balanced,” Emerson said. “If they want to maintain $100, they are going to need to get through July and August and then cut back. They aren’t going to cut during a major demand period.”

Fuel consumption on the Arabian Peninsula peaks in the summer months, when high temperatures lead to increased use of air conditioners.

Futures also dropped as equities slipped after better-than-forecast reports on business activity and consumer confidence bolstered speculation the Federal Reserve will scale back its bond purchases. The Standard & Poor’s 500 Index and the Dow Jones Industrial Average each declined 0.8 percent.

The MNI Chicago Report’s business barometer increased to 58.7, exceeding all forecasts in a Bloomberg survey and the highest level since March 2012, from 49 in April. The 9.7-point jump in the Chicago index was the biggest since July 1983.

Consumer Confidence

Consumer confidence increased to 84.5 in May, the strongest since July 2007, from 76.4 in April, according to figures from Thomson Reuters/University of Michigan.

The Dollar Index, which tracks the currency against six others, rose as much as 0.7 percent to 83.598 on signs the U.S. economy is strengthening. A stronger U.S. currency reduces the appeal of raw materials as an investment. The Standard & Poor’s GSCI Index of 24 commodities fell as much as 1.2 percent to 615.18, the lowest level since May 2.

Implied volatility for at-the-money WTI options expiring in July was 22.4 percent, compared with 22.2 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 572,477 contracts as of 3:45 p.m. It totaled 586,332 contracts yesterday, little changed from the three-month average. Open interest was 1.73 million contracts.

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

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

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