West Texas Intermediate crude fell for a third day amid speculation that the Federal Reserve will reduce stimulus and after Bank of America’s Francisco Blanch said it will be difficult for WTI to rally much more.
Prices slid 1.2 percent as Fed Bank of Chicago President Charles Evans, who has been among the most vocal proponents of record monetary accommodation, said he wouldn’t rule out a September decision to taper the central bank’s bond-buying program. WTI could drop $8 to $10, Blanch, head of commodities research at Bank of America in New York, said in a Bloomberg Radio interview with Tom Keene and Michael McKee.
“People have been concerned about the Fed reducing its stimulus and we seem to be closer to the point where it actually happens,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It could be that people are seeing Blanch’s comments as a tipping point. This is now the time to take some profit.”
WTI for September delivery decreased $1.26 to settle at $105.30 a barrel on the New York Mercantile Exchange. Prices have tumbled 2.5 percent since reaching a 16-month high on July 19. The volume of all futures traded was 9.9 percent below the 100-day average at 2:46 p.m.
Brent for September settlement slid 52 cents, or 0.5 percent, to end the session at $108.18 a barrel on the London-based ICE Futures Europe exchange. Volume was near the 100-day average. The European benchmark grade was at a premium of $2.88 to WTI.
Crude surged 8.8 percent in July, the biggest monthly gain since August 2012, as U.S. inventories dropped and on concern that political instability in Egypt may disrupt exports from the Middle East.
“At this level, it will be hard for WTI to push higher unless there is a major geopolitical event,” Blanch said.
The Fed is likely to end the $85 billion a month bond buying program in mid-2014, Evans said at a meeting with reporters in Chicago. He is a voting member of the Federal Open Market Committee this year and has consistently supported increased stimulus.
Dallas Fed President Richard Fisher, one of the most outspoken critics of quantitative easing, warned investors in a speech yesterday in Portland, Oregon, not to rely on the central bank’s monthly bond purchases.
Crude also dropped as flows through the BP Plc-operated North Sea Forties Pipeline System rose gradually after the system shut down on Aug. 1 for maintenance. Flows via the line will remain below normal through mid-September, according to the London-based company.
Libya will probably pump 800,000 barrels a day of oil next month, up from 700,000, Oil Minister Abdulbari Al-Arusi said yesterday. The North African country reopened an oil port closed by protests last week. All but one of Libya’s oil-export harbors was shut last week because of a labor dispute.
“The resumption of shipping on the Forties Pipeline System and expectations that Libyan oil output may be walking back up toward more normal levels may have contributed to the weakness,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York, in an e-mail.
Iranian President Hassan Rohani said his country, the target of international sanctions over its nuclear program, is “seriously determined” to resolve the dispute without compromising its right to nuclear power for peaceful purposes.
“We are for negotiations,” Rohani said in his first news conference after taking office this month. “We are ready to enter without wasting time in negotiations that are substantive and serious.”
Iran holds 9.6 percent of the production capacity of the 12-member Organization of Petroleum Exporting Countries, according to Bloomberg estimates.
Prices gained earlier on forecasts that U.S. inventories dropped to a six-month low last week. Stockpiles decreased 1.5 million barrels to 363.1 million in the week ended Aug. 2, a Bloomberg survey showed. The Energy Information Administration reports weekly inventory data tomorrow.
“We are seeing a tightening fundamental picture in the U.S.,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “If you continue to see draws in crude stocks, I think the market is going to be firmer.”
U.S. crude production jumped to an average 7.5 million barrels a day in July, the highest monthly level since 1991, the EIA said today in its Short-Term Energy Outlook. The agency forecast U.S. output will average 7.4 million barrels a day in 2013 and 8.2 million in 2014, both about 100,000 barrels a day higher than last month’s forecast.
Crude output in July was “the highest for any month since 1991,” Adam Sieminski, the administrator of the EIA, said in a statement. “EIA expects that U.S. monthly crude-oil production will exceed U.S. crude-oil imports as early as October, the first time this will have happened since February 1995.”
The agency also boosted its 2013 forecast for WTI to $96.96 a barrel from $94.65 in July. The U.S. benchmark grade will average $92.96 in 2014, up from the previous month’s estimate of $91.96.
Implied volatility for at-the-money WTI options expiring in September was 21.5 percent, down from 22.1 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 482,847 contracts as of 2:46 p.m. It totaled 428,075 contracts yesterday, 38 percent below the three-month average. Open interest was 1.87 million contracts.