West Texas Intermediate crude fell for a fourth day, the longest stretch of declines this year, on forecasts that U.S. supplies climbed from an 82-year high.
Futures dropped 1 percent on speculation rising inventories will meet increasing fuel demand. Stockpiles probably gained 450,000 barrels to 396 million last week, according to a Bloomberg survey before an Energy Information Administration report tomorrow. Growth in North American production will be as significant for global markets as China’s economic boom, the International Energy Agency said today.
“From a supply standpoint there isn’t a lot for the bulls to put their horns into,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “The market is in the midst of a slow steady drip downwards. It might take some time but eventually we return to trading on the fundamentals.”
WTI oil for June delivery decreased 96 cents to $94.21 a barrel on the New York Mercantile Exchange, the lowest settlement since May 2. The volume of all contracts traded was 10 percent above the 100-day average at 4:36 p.m.
Prices were little changed after the American Petroleum Institute reported that U.S. inventories rose 1.11 million barrels to 390.2 million. The June contract fell 93 cents to $94.24 a barrel in electronic trading at 4:36 p.m. The contract traded at $94.32 before the report was released at 4:30 p.m.
Brent oil for June settlement slipped 22 cents to end the session at $102.60 a barrel on the London-based ICE Futures Europe exchange. Volume for all contracts was 8 percent greater than the 100-day average.
The European benchmark grade was at a premium of $8.39 a barrel to WTI futures. The spread was $7.65 yesterday, the narrowest based on settlement prices since January 2011.
Gasoline stockpiles probably shrank by 1.1 million barrels last week, according to the median estimate of 12 analysts surveyed by Bloomberg. Inventories of distillate fuel, a category that includes heating oil and diesel, climbed by 475,000 barrels, the survey shows.
U.S. crude production climbed 57,000 barrels a day to 7.37 million in the week ended May 3, the highest level since February 1992, the EIA reported on May 8.
“Prices are weighed down by expectations of another build in U.S. inventories,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Production levels are very high and are expected to keep climbing for the foreseeable future.”
North America will provide 40 percent of the world’s new supplies until 2018 through the development of light, tight oil from shale deposits and oil sands, the IEA said in its medium-term market report.
OPEC’s spare crude oil production capacity will surge as rising U.S. output crimps demand for the group’s supplies, according to the IEA. The Organization of Petroleum Exporting Countries is forecast to increase its implied spare output capacity to a peak of 7.18 million barrels a day in 2015 versus 5.76 million this year, the report showed.
“We’re going through an interesting transformation of the oil market right now as U.S. production increases,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “We had been experiencing a continuous drop in U.S. output since about 1970, which has come to an end. This raises problems for OPEC.”
Global oil demand will increase by 6.1 million barrels a day, or 6.7 percent, to 96.7 million a day by 2018 as the recovery gathers pace, the Paris-based agency said.
The IEA, which also released its monthly oil market report today, boosted its forecast for global demand in 2013 for the first time since January. The IEA raised the 2013 estimate by 65,000 barrels a day, predicting that world oil use will rise this year by 800,000 barrels a day to 90.6 million.
Futures also climbed as a stronger U.S. currency reduced the appeal of dollar-denominated raw materials as an investment. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, rose 0.4 percent to 83.60, the highest level since July. The Standard & Poor’s GSCI Index of 24 commodities dropped 0.4 percent.
Oil rebounded early in the session after equities advanced on bullish comments from David Tepper, a hedge-fund manager. The co-founder and owner of Appaloosa Management told CNBC the economy is improving.
The S&P 500 Index climbed to a record for the eighth time in nine days. It rose 1 percent to an all-time high of 1,650.34. The Dow Jones Industrial Average increased 0.8 percent.
Implied volatility for at-the-money WTI options expiring in July was 21.1 percent, down from 21.3 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 553,893 contracts as of 4:38 p.m. It totaled 627,860 contracts yesterday, 8.3 percent above the three-month average. Open interest was 1.76 million contracts.