West Texas Intermediate crude fell to an eight-month low on surging output, ample supply and reduced fuel use in the U.S., the world’s biggest oil-consuming country.
Futures declined 0.7 percent. U.S. production climbed last week to the highest level in more than two decades, according to an Energy Information Administration report yesterday. Fuel supplies rose as usage slipped for a third week. Crude stockpiles were near a 30-year seasonal high.
“There’s been a huge increase in domestic crude-oil production,” said Adam Wise, who helps run a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston. “The gains in output should continue. They’ve turned on the spigot and are getting better at finding ways to move the oil to market.”
WTI for February delivery dropped 67 cents to settle at $91.66 a barrel on the New York Mercantile Exchange. It was the lowest settlement since May 1. The volume of all futures traded was 15 percent higher than the 100-day average at 3:47 p.m. Futures have fallen 6.9 percent since the start of the year.
Brent for February settlement decreased 76 cents, or 0.7 percent, to end the session at $106.39 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures was 11 percent above the 100-day average.
WTI’s discount to Brent widened earlier as the Buzzard oil field in the North Sea was halted and gunmen blew up a pipeline in northern Iraq. Brent traded closed at a $14.73 premium to WTI, down from $14.82 yesterday. The spread widened to as much as $15.38, the most since Dec. 4, during trading.
WTI sank 1.4 percent yesterday after EIA data showed U.S. crude production rose 24,000 barrels a day to 8.15 million last week, the most since September 1988. Output has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked oil trapped in shale formations.
Stockpiles of distillate fuel, a category that includes diesel and heating oil, rose by 5.83 million barrels last week, according to the EIA, the Energy Department’s statistical arm. Gasoline supplies climbed 6.24 million.
“The fundamentals don’t look good,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Crude production continues to surge ahead and the refiners are processing this into fuel that is going into storage.”
Refineries operated at 92.3 percent of capacity last week, down 0.1 percentage point from Dec. 27. About 16.1 million barrels a day of crude was processed. The figure reached a seven-year high of 16.2 million Dec. 27.
Crude inventories shrank by 2.68 million barrels to 357.9 million in the week ended Jan. 3. Supplies remain near a 30-year seasonal high after slipping 33.5 million barrels in six weeks, the most since October 1990.
“We’re still digesting yesterday’s EIA data,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “Crude supplies have dropped more than 33 million barrels in six weeks, which is huge. This is being balanced by an avalanche as far as the products are concerned.”
Total products supplied, a measure of fuel consumption, tumbled 4.1 percent to 18.2 million, the least since June 7, according to the EIA.
Futures in London advanced as much as 1 percent earlier today on reports of a shutdown of the 200,000-barrel-a-day Buzzard field. Operations are in the process of restarting, operator Nexen Inc. said. Buzzard crude feeds into the Forties blend, one of four grades that make up the Dated Brent benchmark used to price more than half of the world’s oil.
“The halt of Buzzard production gave the market a pop,” said John Kilduff, partner at Again Capital LLC a New York-based hedge fund that focuses on energy. “Disruptions in North Sea supply have repeatedly boosted prices over the last year.”
The attack in Iraq is the second on a pipeline in the Kirkuk region this year. Oil output and exports from the field weren’t affected by the explosion, the state-run run North Oil Co. said in an e-mailed statement today. Iraq is the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia and pumped 3.2 million barrels a day last month, according to a Bloomberg survey.
In western Libya, the port of Zawiya will export crude next week from the Sharara field, which resumed operations on Jan. 4, Ibrahim Al Awami, head of oil ministry’s department of measurement and inspection, said by phone today from Tripoli.
Libya produced more than 500,000 barrels a day on Jan. 6 as Sharara and other locations resumed pumping, according to nation’s oil ministry. Sustained output at that level would mark the first increase in 10 months, Bloomberg data show.
Implied volatility for at-the-money WTI options expiring in March was 18.6 percent, down from 18.9 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 546,919 contracts at 3:47 p.m. It totaled 634,152 contracts yesterday, 20 percent higher than the three-month average. Open interest was 1.62 million contracts.
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