West Texas Intermediate crude dropped to a five-month low on speculation that inventories increased for a seventh week in the U.S., the world’s biggest oil-consuming country.
Futures fell 1.3 percent before an Energy Information Administration report tomorrow that will probably show crude supplies rose 2.1 million barrels last week, according to the median of 11 analyst responses in a Bloomberg survey. U.S. crude output surged to a 24-year high in October while refinery demand fell. WTI’s drop accelerated on the outlook for reduced U.S. stimulus and euro-region growth.
“The market is pulling back on the perception that the supply-demand balance isn’t going to tighten anytime soon,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania.
WTI for December delivery declined $1.25 to $93.37 a barrel on the New York Mercantile Exchange. It was the lowest settlement since June 4. The volume of all WTI futures traded was 21 percent below the 100-day average at 4:37 p.m.
Losses were trimmed after the American Petroleum Institute reported that U.S. supplies grew 871,000 barrels last week. WTI slid $1.13 to $93.49 a barrel at 4:37 p.m. in electronic trading. It was $93.34 before the report’s release at 4:30 p.m.
Brent oil for December settlement slipped 90 cents, or 0.8 percent, to close at $105.33 a barrel on the London-based ICE Futures Europe exchange. It was the lowest settlement since July 2. Volume was 8.7 percent lower than the 100-day average. The European benchmark crude traded at a $11.96 premium to WTI at today’s close, up from $11.61 yesterday.
WTI fell 5.8 percent in October, the biggest monthly decrease in a year, as a surge in U.S. crude production bolstered inventories. Output rose to 7.9 million barrels a day as of Oct. 18, the fastest rate since March 1989, according to the EIA, the Energy Department’s statistical unit.
“The U.S. is swimming in oil right now, and there’s been no sign of a pickup in seasonal demand,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.
Refineries probably operated at 87.1 percent of capacity in the seven days ended Nov. 1, down 0.2 percentage point from a week earlier, the survey showed. Maintenance is scheduled after the peak summer gasoline-demand season and before heating-fuel demand increases in the winter.
Gasoline stockpiles probably declined 400,000 barrels, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably dropped 1.5 million barrels.
“The EIA reports over the last few weeks have outperformed analyst estimates, and I wouldn’t be surprised if that happens again tomorrow,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “The supply situation is overwhelming everything else.”
The U.S. Institute for Supply Management’s gauge of service industries rose more than forecast, spurring concern the Federal Reserve will grow confident enough in the economy to reduce stimulus. The ISM’s non-manufacturing index gained to 55.4 from September’s 54.4, the Tempe, Arizona-based group said today. The median estimate in a Bloomberg survey of economists was 54.
The dollar gained 0.3 percent to $1.3474 against the euro, curbing demand for commodities denominated in the U.S. currency. The S&P’s GSCI Index of 24 raw materials slid by 0.6 percent to 606.77, the lowest since April. Declines were led by WTI.
Reports this week may show the U.S. economy slowed in the third quarter and employers hired fewer workers in October. Gross domestic product grew at a 2 percent annualized rate after a 2.5 percent pace from April through June, according to economists surveyed before Commerce Department data on Nov. 7. Payrolls rose by 120,000 workers last month after a 148,000 gain in September, Labor Department figures may show Nov. 8.
The euro area’s economy will expand 1.1 percent in 2014 less than the 1.2 percent forecast in May, and unemployment will be 12.2 percent next year, above the 12.1 percent predicted earlier, the European Commission in Brussels said today.
In Libya, the harbor of Hariga may resume operations next week, according to state-run National Oil Corp. Hariga and three other ports including Es Sider, the country’s biggest, have been closed since July because of protests.
Libya’s daily crude output was about 250,000 barrels on Nov. 3, Mohamed Elharari, a National Oil spokesman, said yesterday. That’s down from 1.3 million barrels in the first half of this year, according to data compiled by Bloomberg.
Further declines in WTI may be limited as a technical indicator signaled that prices have dropped too quickly, Yawger and Armstrong said. The 14-day relative strength index fell below 27 today for the first time in a year, according to data compiled by Bloomberg. Investors typically buy contracts when the reading is less than 30, a sign a market is oversold.
“I don’t see prices sliding to $90 anytime soon because the market is so oversold,” Yawger said. “If not for rising supplies, prices would be up on the RSI.”
Implied volatility for at-the-money WTI options expiring in December was 21.5 percent, up from 20.9 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 439,323 contracts as of 4:40 p.m. It totaled 473,166 contracts yesterday, 18 percent below the three-month average. Open interest was 1.74 million contracts, the least since June 4.