Crude Tumbles to Six-Year Low After Unexpected U.S. Supply Gain

Updated on
Oil Market's Response to Global Supply and Demand

Oil plunged to the lowest level in more than six years in New York after a government report showed that U.S. crude stockpiles unexpectedly increased.

West Texas Intermediate slipped 4.3 percent, the most in six weeks, after the Energy Information Administration said crude supplies rose 2.62 million barrels last week. An 820,000 barrel stockpile decline was projected by analysts surveyed by Bloomberg. Stocks of oil and natural gas producers were the worst performers on the Standard & Poor’s 500.

Oil has tumbled more than 30 percent since this year’s peak close in June amid signs that producers are maintaining output even after a surplus pushed prices into a bear market. WTI could drop to $32 on the persisting global surplus, Citigroup Inc. said in a report Wednesday.

“Today’s inventory build was another catalyst to move lower,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. “The build was completely unexpected and the surge in imports was impressive.”

WTI for September delivery, which expires Thursday, dropped $1.82 to close at $40.80 a barrel on the New York Mercantile Exchange. It was the lowest settlement since March 2, 2009. Prices touched $40.46, the least since March 3, 2009. The more-active October contract slipped $1.85 to $41.27.

Brent for October settlement fell $1.65, or 3.4 percent, to end the session at $47.16 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since Jan. 13. The European benchmark crude closed at a $5.89 premium to October WTI.

In the stock market, Marathon Oil Corp. was the biggest loser on the Standard & Poor’s 500, with a 7 percent decline, followed by Anadarko Petroleum Corp. The sub-index of oil and natural gas producers slumped as much as 4.9 percent, the most since Jan. 28.

Market Balance

Oil balances point to further oversupply throughout 2015, “begging the question how low can oil go?” Citigroup analysts led by Seth Kleinman said in the note.

“Eventually, supply and demand will come into balance, but it will take a while,” Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said by phone. “Oil prices are too low to support production at this level.”

U.S. crude inventories rose to 456.2 million barrels in the week ended Aug. 14, the EIA said. Stockpiles at Cushing, Oklahoma, the delivery point for WTI traded in New York, rose 326,000 barrels to 57.4 million, the first gain in four weeks.

Crude imports climbed 6.1 percent to 8.04 million barrels a day, the report showed. Fuel imports climbed 12 percent to 2.61 million, the highest since January.

Refinery inputs to distillation units slipped 1 percent to 17.1 million barrels a day. Refineries operated at 95.1 percent of their capacity, down 1 percentage point from the prior week.

Fuel Stockpiles

Inventories of distillate fuel, a category that includes diesel and heating oil, rose 594,000 barrels to 148.4 million, the most since October 2011. Gasoline supplies dropped 2.71 million barrels to 212.8 million, the least since November.

September gasoline futures decreased 8.76 cents, or 5.3 percent, to $1.5592 a gallon, the lowest close since Feb. 11. Diesel for September delivery tumbled 4.06 cents, or 2.6 percent, to $1.518, the lowest settlement since July 2009.

The Organization of Petroleum Exporting Countries has pumped above its 30 million-barrel-a-day quota for more than a year, according to data compiled by Bloomberg.

Saudi Arabia’s oil exports rebounded in June from a five-month low as the largest OPEC producer boosted output, according to data on the website of the Joint Organizations Data Initiative, or JODI. Output rose to 10.564 million barrels daily from 10.3 million. Saudi Arabia told OPEC its June production was a record, exceeding a previous all-time high set in 1980.

Market Battle

“The numbers that the Saudis reported to JODI are another gut check,” Kilduff said. “It’s clear that the major producers, the Saudis, Russians, the U.S. and others, are battling for market share.”

Angola plans to ship 1.83 million barrels a day in October, the most since November 2011, according to a preliminary loading program obtained by Bloomberg. That compares with 1.77 million barrels in September.

Iraq must increase oil output to meet the needs of its growing population and provide services, Prime Minister Haidar Al-Abadi said on his website. The nation’s production climbed to a record 4.18 million barrels a day in July, according to the International Energy Agency.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE