Oil Drops to Two-Month Low as U.S. Seen Swelling World Glut

  • EIA forecast to report 2 million-barrel increase, survey shows
  • Average OPEC crude price falls below $40 first time since 2009

Oil declined in New York, closing at the lowest level in more than two months, as U.S. crude stockpiles are estimated to have expanded for an eighth week.

West Texas Intermediate fell 2.6 percent as French jets bombed Islamic State targets in Syria for a second day. U.S. crude supplies probably rose by 2 million barrels last week, according to a Bloomberg survey before Energy Information Administration data Wednesday. Oil futures settled at the lowest level since August when prices tumbled to a six-year low. Both gasoline and diesel futures dropped to the lowest since 2009.

"The weak fundamentals are the focus today," Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said by phone. "Fears of excess supply and a slowing global economy are driving prices lower. It looks like we’re about to test the six-year lows again."

Oil has slumped 46 percent the past year amid speculation a global glut will persist as the Organization of Petroleum Exporting Countries continues to pump above its collective quota and Russian production has climbed to a post-Soviet high. French President Francois Hollande called on the U.S. and Russia to forge a new alliance to destroy Islamic State.

WTI for December delivery fell $1.07 to settle at $40.67 a barrel on the New York Mercantile Exchange. It was the lowest close since Aug. 26. The volume of all futures traded was 8.7 percent above the 100-day average at 4:47 p.m.

Losses eased after the American Petroleum Institute was said to report U.S. crude supplies fell 428,000 barrels last week. WTI traded at $41.09 at 4:48 p.m.

U.S. Stockpiles

Brent for January settlement declined 99 cents, or 2.2 percent, to end the session at $43.57 a barrel on the London-based ICE Futures Europe exchange. It was the lowest settle since Aug. 26. The European benchmark crude closed at a $1.86 premium to WTI for January delivery.

U.S. crude inventories climbed to 487 million barrels through Nov. 6, keeping supplies more than 100 million barrels above the five-year seasonal average, according to EIA data. Refinery runs probably rose 0.5 percentage points last week to 90 percent of total capacity, the Bloomberg survey shows. Inventories of gasoline and distillate fuel, a category that includes diesel and heating oil, both probably fell 500,000 barrels.

Diesel Swoons

Diesel for December delivery fell 1.7 cents, or 1.2 percent, to close at $1.3681 a gallon , the lowest since April 30, 2009. Gasoline futures slipped 0.06 cent to settle at $1.238, the least since Feb. 25, 2009.

France will test the readiness for an alliance against Islamic State at the United Nations with a resolution that can only pass with the support of veto-carrying Russia and the U.S., which are conducting separate bombing campaigns and have clashed over political goals.

The well-supplied crude market, record high inventories in OECD and lack of a material threat to oil facilities in the Middle East from the military escalation in Syria are going to prevent geopolitical price premiums building after the Paris terrorist attacks, BMI Research said in an e-mailed note Tuesday.

U.S. A-10s based in Turkey and AC-130 gunships destroyed 116 Islamic State oil tanker trucks on Sunday, according to Pentagon spokesman Navy Captain Jeff Davis. It was part of an increased coalition assault on Islamic State oil infrastructure, he said.

OPEC Pain

The average price of crude sold by OPEC fell below $40 a barrel for the first time since 2009, according to the organization’s secretariat in Vienna. The daily OPEC Basket Price fell to $39.21 a barrel on Nov. 13, according to an e-mail on Monday from the secretariat. The basket, an average of export grades from each of the group’s 12 members, typically trades below international oil futures as some OPEC nations pump denser or higher-sulfur crude that’s less profitable to refine.

Iran won’t negotiate with OPEC or seek the group’s permission before boosting oil exports by a planned 500,000 barrels a day once sanctions are removed. The nation is unconcerned about the impact this additional supply may have on prices, which already reflect the expected increase in Iranian shipments, Oil Minister Bijan Namdar Zanganeh said Tuesday at a news conference in Tehran.

OPEC’s board of governors was unable to agree on the group’s long-term strategy plan and won’t present it to oil ministers when they meet on Dec. 4 in Vienna, two OPEC delegates with knowledge of the matter said.

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