West Texas Intermediate crude was little changed as U.S. crude inventories dropped more than expected and economists forecast that the Federal Reserve will reduce stimulus measures.
Prices rose 2 cents. Supplies decreased 2.81 million barrels last week, the Energy Information Administration said, more than the 1.5 million estimated in a Bloomberg survey of analysts. Fed Chairman Ben S. Bernanke may trim $85 billion in monthly bond purchases at a September meeting of policy makers, 65 percent of economists in a separate Bloomberg survey said.
“The EIA report is supportive for prices because the drop is bigger than expected,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “Oil prices came under pressure ahead of the Fed meeting. Market participants may have exacerbated concerns regarding the Fed tapering.”
WTI for September delivery settled at $106.85 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 4.2 percent above the 100-day average at 4:27 p.m. and open interest reached a record high yesterday. Futures were at $106.36 before the report was released at 10:30 a.m. in Washington.
Brent for September settlement gained 38 cents, or 0.3 percent, to end the session at $110.20 a barrel on the London-based ICE Futures Europe exchange. Volume was 3.3 percent below the 100-day average. WTI’s discount to Brent grew to $3.35, the widest level since July 30.
Crude stockpiles fell 0.8 percent to 360.5 million barrels last week, the least since January, the EIA, the Energy Department’s statistical arm, said.
Stocks at Cushing, Oklahoma, the delivery point for WTI futures traded on the Nymex, declined for a sixth week to 38.5 million, the fewest since March 2012.
Supplies at the hub have been decreasing as improved pipeline networks and the use of rail links ease a supply glut created by rising production of crude from shale formations. Domestic production increased to 7.57 million barrels a day last week, the most since 1989.
“The drop in inventories is helpful for the market,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The market has a bullish tone.”
The Fed’s first step may be small, with monthly purchases tapered by $10 billion to a $75 billion pace, according to the median estimate in a survey of 48 economists conducted Aug. 9-13. The Fed will end the buying by mid-2014, they said. In a survey last month, half of economists predicted a Fed reduction at policy makers’ next scheduled meeting Sept. 17-18.
“The oil market started to pull back because people are anticipating Fed tapering,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
WTI fell as much as 1.2 percent in intraday trading as the EIA report also showed crude use at U.S. refineries dropped to the lowest level since June and petroleum consumption decreased.
U.S. refineries processed 15.6 million barrels a day of crude last week, the fewest since June 14. The refinery utilization rate slid to 89.4 percent, down 1.5 percentage points from the prior week. The rate had been above 90 percent since June 14.
“We need the runs to get back above 90 percent for the market to hold up,” O’Grady said.
U.S. total petroleum demand fell 3 percent to 19.1 million barrels a day last week, the lowest level since June 21, the EIA said. Gasoline consumption decreased for the first time in four weeks to 9.19 million barrels a day.
Libya’s Waha Oil Co. halted almost all of its 340,000 barrels of daily production as storage tanks reached full capacity amid port closures, Abdel Hakim Al Hansheer, a Waha Oil official, said at a press conference today in Tripoli. Fields operated by Waha stopped at the end of last week as sit-ins by guards seeking better conditions crippled the nation’s export facilities, he said.
Libya, holder of Africa’s biggest reserves, is now producing about 650,000 barrels a day, less than half the level pumped before the 2011 uprising against Muammar Qaddafi, Oil Minister Abdulbari Al-Arusi said yesterday.
Brent may surge to $120 if Libya’s production “does not promptly bounce back above” 1 million barrels a day, Francisco Blanch, head of commodities research at Bank of America Corp., said in a report.
Implied volatility for at-the-money WTI options expiring in October was 21.7 percent, little changed from yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 592,309 contracts as of 4:27 p.m. It totaled 646,096 contracts yesterday, 0.5 percent below the three-month average. Open interest was a record 1.93 million contracts.