West Texas Intermediate crude fell to the lowest level in almost six months on rising U.S. stockpiles and production. The spread between WTI and Brent widened to an eight-month high.
Futures dropped 1.5 percent. Supplies rose 2.95 million barrels to 391.4 million last week, the 10th gain in a row, according to the Energy Information Administration. U.S. crude production increased 45,000 barrels a day to 8.02 million, the most in almost 25 years. Brent’s premium to WTI exceeded $19.
“Crude supplies are rising because of the production gains, which we don’t expect to abate anytime soon,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “There’s plenty of crude in the U.S., which we need to get refined so we can export it as fuel. The WTI-Brent spread is widening on the U.S. supply picture.”
WTI oil for January delivery declined $1.38 to settle at $92.30 a barrel on the New York Mercantile Exchange. It was the lowest close since May 31. The volume of all futures traded was 22 percent below the 100-day average at 2:52 p.m. There will be no floor trading in New York tomorrow because of the Thanksgiving holiday.
Brent for January settlement rose 43 cents, or 0.4 percent to end the session at $111.31 a barrel on the London-based ICE Futures Europe exchange. It was the highest close since Oct. 11. The North Sea grade settled at a $19.01 premium to WTI, the most since March 7.
WTI declined in the six weeks through Nov. 15, the longest losing streak in 15 years, as U.S. crude supplies expanded amid rising production. Inventories are at the highest level for this time of year since the EIA began weekly records in 1983.
“The horn of plenty is overflowing, at least as far as oil is concerned, as we go into the holiday weekend,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.
Crude output has surged to the highest level since 1989 as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations.
Crude supplies at Cushing, Oklahoma, the delivery point for WTI, increased 676,000 barrels to 40.6 million, according to the EIA, the Energy Department’s statistical arm.
“This was a very bearish report,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “With growing U.S. crude oil production, refiners are finding it harder to manage their stockpiles. They’re holding a lot more than is necessary for a high level of refinery activity.”
Refineries operated at 89.4 percent of capacity, up 0.8 percentage point from the prior week and a two-month high. Utilization rates usually peak during the summer months when U.S. gasoline demand rises and decline in September and October.
“Refineries are coming out of maintenance but operations aren’t high enough to make a dent in supplies,” Hodge said. “The refining system isn’t set up for this. We will have to start thinking of exporting crude, which will make for an interesting political discussion.”
The U.S. met 86 percent of its energy needs in the first eight months of 2013, which would be the highest annual rate since 1986, according to data from the EIA. U.S. crude exports are restricted to some Alaskan and California barrels, certain oil to Canada and shipments to U.S. territories.
Gasoline stockpiles increased 1.75 million barrels to 210.6 million, the first gain in seven weeks, the report showed. Supplies of distillate fuel, a category that includes heating oil and diesel, fell 1.67 million barrels to 110.9 million, a five-year low.
“There’s some complacency about distillate supplies, which are physically tight,” Evans said. “Demand is strong.”
Total petroleum consumption in the four weeks ended Nov. 15 slipped 0.6 percent to 20.1 million, down from 20.3 million a week earlier, which was the most since August 2008.
The Organization of Petroleum Exporting Countries will reaffirm its output target of 30 million barrels a day at the Dec. 4 meeting in Vienna, according to 18 of 20 analysts and traders surveyed by Bloomberg.
OPEC’s 12 members produced 30.62 million barrels a day last month, data compiled by Bloomberg show. That’s up from 30.58 million in September.
The European Union reinstated sanctions against 16 of 18 Iranian companies that were voided by an appeals court on Sept. 16, according to the bloc’s official journal. The EU offered “new statements of reasons” to justify the restrictions.
Iran reached a six-month accord with world powers to limit its nuclear program in exchange for as much as $7 billion in relief from some sanctions. The nation’s oil output has decreased 16 percent since the U.S. and the European Union tightened sanctions in July 2012 to curb its nuclear program.
Implied volatility for at-the-money WTI options expiring in January was 17.6 percent, up from 16.6 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 391,170 contracts as of 2:52 p.m. It totaled 322,593 contracts yesterday, the least since Aug. 26. Open interest was 1.64 million contracts.