West Texas Intermediate declined after a government report showed U.S. inventories grew by the most in a year as refineries reduced crude processing.
Prices capped the biggest drop in four weeks after the Energy Information Administration said supplies rose 6.81 million barrels last week, more than four times the median estimate of analysts surveyed by Bloomberg. The refinery operating rate decreased to 86 percent, a five-month low. WTI also fell as talks to end the government shutdown and lift the debt ceiling remained deadlocked.
“The size of the build is pretty significant,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The rising crude stocks are certainly suggestive of downward prices. The deadlock does raise the threat of tipping us over to a recession.”
WTI for November delivery slid $1.88, or 1.8 percent, to $101.61 a barrel on the New York Mercantile Exchange, the biggest one-day loss since Sept. 10. The price was $101.95 before the EIA report came out at 10:30 a.m. The volume of all futures traded was 6.1 percent above the 100-day average.
Brent for November settlement fell $1.10, or 1 percent, to $109.06 a barrel on the London-based ICE Futures Europe exchange. Trading was 12 percent above the 100-day average. The European benchmark was at a premium of $7.45 to WTI versus $6.67 yesterday.
Crude supplies increased to 370.5 million barrels in the week ended Oct. 4, the most since July 5, the EIA, the Energy Department’s statistical arm, said in the report.
The refinery utilization rate dropped to the lowest level since April 26 from 89 percent the previous week. Units are usually idled for maintenance after the peak summer gasoline-demand season, which ended with Labor Day on Sept. 2. Refiner net input fell to 14.9 million barrels a day.
“The over-6-million-barrel build is bearish,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “We have the continuing budget problems.”
Domestic production climbed to 7.81 million barrels a day. Output has boomed as the combination of horizontal drilling and hydraulic fracturing, or fracking, unlocked shale supplies in the central part of the country.
Crude inventories at Cushing, Oklahoma, the delivery point for WTI futures, dropped 168,000 barrels to 32.6 million. The 14-week decline is the longest since EIA began keeping records for Cushing in 2004. Stockpiles there have been decreasing as improved pipeline networks and rail moved more crude out of Cushing or directly to Gulf Coast refineries.
“People are becoming accustomed to Cushing stock levels now,” Lynch said. “So it’s not necessarily bullish for the market.”
Gasoline stockpiles rose 149,000 barrels to 219.9 million and distillates, which include diesel and heating oil, fell 3.14 million to 126 million, the EIA said.
“The bears are in control now,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “Growth may be handicapped by the government shutdown and there is demand worry.”
Possible paths out of the partisan impasse in Washington are starting to emerge as the U.S. government enters the ninth day of a partial shutdown, with less than a week before U.S. borrowing authority lapses Oct. 17. Lawmakers remain far from an agreement amid verbal sparring between President Barack Obama and House Speaker John Boehner.
Republican lawmakers have sought spending cuts and changes in the health-care law in exchange for an agreement to reopen the government and raise the debt limit.
Obama opened the door to talks with Republicans on topics ranging from health care to entitlement programs if they end the standoff over the U.S. debt ceiling. Boehner insisted on immediate negotiations, rejecting the president’s stance that he’ll talk only after the shutdown ends and the risk of default is pushed back.
Crude also fell as the U.S. dollar gained, reducing oil’s investment appeal. The Bloomberg Dollar Index rose 0.4 percent.
WTI may move below $100 in the fourth quarter as a potential supply glut in the Houston area weighs on prices, Francisco Blanch, head of commodities research at Bank of America Corp. in New York, said in a report.
Crude supplies in the Gulf Coast, known as PADD 3, increased to 188.6 million barrels, the most since June 21.
Implied volatility for at-the-money WTI options expiring in November was 21.9 percent, little changed from 21.8 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 560,789 contracts as of 2:44 p.m. It totaled 493,672 contracts yesterday, 17 percent below the three-month average. Open interest was 1.87 million contracts.