Oil Pares Gains as Concerns Over More Supply Weigh

Oil extended losses amid speculation that crude-producing countries will increase supply, outweighing the impact of Japan’s expanded program of monetary easing and economic stimulus.

Futures fell as much as 1 percent. Saudi Arabia is taking action to reduce the price of oil by 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. The Bank of Japan said it will increase its asset-purchase fund to 55 trillion yen ($697 billion) from 45 trillion yen. The BOJ joins the Federal Reserve and the European Central Bank in taking steps to prod the economy.

“BOJ stimulus measures did offer some support initially, but at some point the fundamental drivers need to be reflected, so we think the Saudi story is the primary driver today,” said Michael Hewson, a London-based analyst at CMC Markets. “Oil is way too high, especially Brent, when you consider the fundamentals.”

Oil for October delivery fell as much as 97 cents to $94.32 a barrel in electronic trading on the New York Mercantile Exchange after reaching an intraday high of $96.17, and was at $94.86 at 1:45 p.m. London time. The more-active November future was at $95.19 a barrel, down 43 cents.

Brent oil for November settlement declined $1.17 to $110.86 a barrel on the London-based ICE Futures Europe exchange after falling to $110.42, the lowest since Aug. 7. The front-month European benchmark grade’s premium to the corresponding West Texas Intermediate contract was at $15.66, down from $16.41 yesterday.

Saudi Pledge

The ideal price of crude for the Organization of Petroleum Exporting Countries is $100 a barrel and current prices are not supported by physical supply and demand, the Persian Gulf official said, declining to be identified because he’s not authorized to speak publicly.

The oil market is well balanced and commercial inventories are growing as more supply comes on stream in coming months, while demand is slowing and growth won’t exceed 800,000 barrels a day in 2013, the official said.

Crude inventories in the U.S. gained 2.4 million barrels last week, the American Petroleum Institute said. A government report today may show they rose 1 million, according to a Bloomberg News survey.

Gasoline Stockpiles

Gasoline stockpiles climbed 135,000 barrels, the API data showed. They were projected to rise 1 million barrels, according to the median estimate of nine analysts in the Bloomberg survey before a report from the Energy Department. Distillate supplies, a category that includes heating oil and diesel, dropped 1.1 million barrels, compared with a forecast for a 1 million barrel increase in the survey.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Japan’s central bank kept its benchmark interest rate between zero and 0.1 percent and monthly bond purchases at 1.8 trillion yen, it said in its statement. The U.S. Federal Reserve said Sept. 14 it would start buying mortgage securities while the European Central Bank said Sept. 6 it would purchase bonds.

New housing construction rose in August, boosted by the strongest pace of single-family home starts in more than two years, indicating an improving real estate market.

Construction starts climbed 2.3 percent to 750,000 at an annual rate, Commerce Department figures showed today in Washington. The increase from a revised 733,000 annual pace in July was less than forecast and restrained by a decline in the building of apartments, the data showed. The median estimate of 85 economists surveyed by Bloomberg called for 767,000 starts.

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