Crude tumbled the most in 2013 after the government reported U.S. oil stockpiles increased to the highest level in more than 22 years. West Texas Intermediate’s discount to Brent reached a nine-month low.
Futures in New York fell 2.8 percent as the Energy Information Administration said supplies rose 2.71 million barrels to 388.6 million last week, the most since 1990. The report was projected to show an advance of 2.05 million, according to a Bloomberg survey. Exxon Mobil Corp.’s Pegasus pipeline, linking the U.S. Midwest to Texas refineries, will remain shut until regulators are satisfied with repairs.
“The amount of oil in storage continues to climb and we haven’t seen these levels in decades,” said Adam Wise, who helps manage a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston. “Prices are reacting to the market fundamentals.”
WTI oil for May delivery fell $2.74 to $94.45 a barrel on the New York Mercantile Exchange, the lowest settlement since March 22. Futures dropped the most since Nov. 20. Trading was 39 percent above the 100-day average at 3:11 p.m.
Brent crude for May settlement declined $3.58, or 3.2 percent, to end the session at $107.11 a barrel on the London-based ICE Futures Europe exchange. It was the lowest settlement since Dec. 7 and the biggest decline since Nov. 7. Trading was more than double the 100-day average.
The European benchmark grade traded at a $12.66 premium to WTI, down from $13.50 yesterday and the narrowest spread since July. The differential reached $23.18 a barrel on Feb. 8, the widest level this year.
“There are a number of causes for the narrowing of the Brent-WTI spread,” said Marshall Berol, co-portfolio manager of the Encompass Fund in San Francisco, which has about $300 million in assets. “The primary reason is that some of the risk premium that was built into the Brent price has dissipated.”
Barclays Plc reduced its projections for both WTI and Brent prices in 2013 on “what is for now at least a more placid geopolitical environment than we previously expected,” according to an e-mailed report today. WTI will average $95 a barrel in 2013, down from a previous forecast of $108, and Brent will average $112, down from $125, Miswin Mahesh, an analyst, said in the report.
Crude production was unchanged near the highest level since 1992. Output has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in the central U.S.
Crude stockpiles at the Cushing, Oklahoma, storage hub fell 287,000 barrels to 49.2 million last week, according to the EIA, the statistical arm of the Energy Department. Cushing inventories rose to a record 51.9 million in January.
Refineries operated at 86.3 percent of capacity last week, the most in two months. Units are often reopened in the spring after being idled for maintenance in late winter as attention shifts away from heating oil and before the peak season for gasoline consumption.
Stockpiles of gasoline decreased 572,000 barrels to 220.7 million last week, the lowest level since December, according to the EIA. Gasoline for May delivery tumbled 12.68 cents, or 4.2 percent, to $2.914 a gallon on the Nymex, the lowest settlement since Feb. 28.
Exxon’s 96,000-barrel-a-day Pegasus pipeline line was closed after a leak was discovered in Arkansas on March 29. The line runs from Patoka, Illinois, to Nederland, Texas, and serves refineries on the Gulf Coast.
The Pipeline and Hazardous Materials Safety Administration issued a corrective action order yesterday, citing hazards to “life, property and the environment” if the pipeline were to continue operating without corrective measures.
Equities fell and the drop in crude accelerated after U.S. economic data trailed estimates. The Institute for Supply Management’s service industry index fell to 54.4 in March from 56 in February, the Tempe, Arizona-based group said. The median projection in a Bloomberg survey called for a drop to 55.5. An earlier report showed U.S. companies added fewer jobs than forecast last month.
The Standard & Poor’s 500 Index slipped 1 percent and the Dow Jones Industrial Average dropped 0.7 percent.
The dollar dropped 0.2 percent against the euro, curbing the appeal of raw materials denominated in the U.S. currency as an investment. The Standard & Poor’s GSCI Index of 24 commodities was down 2 percent at 3:14 p.m.
Threatened disruptions of supply from two of Africa’s three biggest crude-producing countries didn’t bolster prices.
The main rebel group in Nigeria’s oil-rich Niger River delta said it’s resuming attacks after its suspected leader, Henry Okah, was imprisoned in South Africa. The Movement for the Emancipation of the Niger Delta will start to carry out assaults on April 5, Jomo Gbomo, a spokesman, said in a statement.
An explosion hit Libya’s Zueitina Oil Co.’s crude and condensate pipelines yesterday at 10 p.m., state-run National Oil Corp. said on its website, citing Abul Qasim Shanger, a company official. The company is investigating the incident and starting repairs, NOC said, without saying whether operations were disrupted.
Implied volatility for at-the-money WTI crude options expiring in May was 20.2 percent, up from 17.3 percent yesterday and the highest level since March 6.
Electronic trading volume on the Nymex was 622,863 contracts as of 3:14 p.m. It totaled 508,715 contracts yesterday, 10 percent below the three-month average. Open interest was a record 1.73 million contracts.