West Texas Intermediate crude dropped, capping the biggest four-day slide in nine months, as Federal Reserve officials indicated that they may pare bond purchases that have bolstered the economy and energy demand.
Futures declined 0.9 percent after Fed Bank of Chicago President Charles Evans said yesterday he “would clearly not” rule out a decision to begin curbing buying in September. An Energy Information Administration report showed that U.S. crude supplies fell for the fifth time in six weeks.
“Concerns that the Fed may soon begin to reduce stimulus permeate all the markets,” said Adam Wise, who helps manage a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston. “There have been a series of significant draws in crude stockpiles but overall levels remain fairly robust.”
WTI crude for September delivery fell 93 cents to $104.37 a barrel on the New York Mercantile Exchange, the lowest settlement since July 30. Futures have tumbled 3.3 percent in four days, the most since October. The volume of all futures traded was 5.6 percent below the 100-day average.
Brent oil for September settlement dropped 74 cents, or 0.7 percent, to end the session at $107.44 a barrel on the ICE Futures Europe exchange. Volume was 10 percent above the 100-day average. The European benchmark grade traded at a $3.07 premium to WTI, up from $2.88 yesterday.
Dallas Fed President Richard Fisher said on Aug. 5 that the central bank is closer to slowing bond purchases and warned investors not to rely on stimulus. Dennis Lockhart, president of the Atlanta Fed, told Market News International that should economic growth and job creation pick up as expected, policy makers should proceed with the “removal” of asset purchases.
“If you look at the big picture, obviously the market is looking more bearish every day,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The Fed is talking about tapering.”
Equities also declined on speculation the U.S. central bank may end the $85 billion a month bond-buying program. The Standard & Poor’s 500 Index and the Dow Jones Industrial Average each declined 0.4 percent.
Inventories of crude oil fell 1.32 million barrels to 363.3 million, the EIA, the Energy Department’s statistical unit, said. Supplies were forecast to slide 1.5 million barrels, according to the median of 11 analyst estimates in a Bloomberg survey. Stockpiles surged to 397.6 million on May 24, the most since 1931.
“Inventories are all within rounding errors of what was expected,” Flynn said.
Crude output rose 0.2 percent to 7.56 million barrels a day last week, the highest level since December 1989, the EIA said. Production has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in the central part of the country.
Stockpiles at Cushing, Oklahoma, the delivery point for WTI, dropped 2.25 million barrels to 39.9 million last week, the lowest level since March 2012, according to the EIA. Supplies reached a record 51.9 million barrels in the week ended Jan. 11.
“Stockpile withdrawals are normal for this time of year,” said Hans van Cleef, an energy economist at ABN Amro Bank in Amsterdam. “Draws in the past few weeks have supported prices somewhat, but from a historical point of view, we’re at relatively high levels, meaning there shouldn’t be any panic.”
Gasoline inventories rose 135,000 barrels to 223.6 million last week, the EIA said. Supplies of distillate fuel, a category that includes diesel and heating oil, increased 469,000 barrels to 126.5 million.
Refineries operated at 90.9 percent of capacity, down 0.4 percentage point from the prior week. Utilization rates usually peak during the summer when U.S. gasoline demand rises.
Crude in New York surged 8.8 percent in July, the biggest monthly gain since August 2012, on concern that political turmoil in Egypt may disrupt oil supplies from the Middle East.
“The decline will be limited because there are a number of outside factors supporting the market,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston.
Egypt’s prime minister warned backers of ousted President Mohamed Mursi to end their sit-ins after the presidency said international efforts to mediate the standoff failed, signaling a crackdown may be imminent. Envoys from the U.S., Europe and Gulf Arab states had flown to Cairo to try to help ease the crisis triggered by the military’s July 3 removal of Mursi.
The U.S. closed diplomatic posts this week across the Middle East, Africa and South Asia after intercepting a message from Ayman al-Zawahiri, Osama bin Laden’s successor as al-Qaeda chief in Pakistan, to the head of al-Qaeda’s Yemen branch, Nasir al-Wuhayshi.
Implied volatility for at-the-money WTI options expiring in September was 21.8 percent, up from 21.6 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 571,255 contracts as of 2:43 p.m. It totaled 543,412 contracts yesterday, 17 percent below the three-month average. Open interest was 1.88 million contracts.