Oil Slides as U.S. Crude Inventories Head for Record Growth

Trading Oil Is Like Trying to Catch a Falling Knife
  • U.S. crude supplies rise 2.63 million barrels last week: EIA
  • Benchmark U.S. crude oil price set for record two-year decline

Oil fell as U.S. crude stockpiles expanded last week, adding to the country’s biggest-ever annual growth.

Inventories rose 2.63 million barrels, capping an expansion of more than 100 million barrels this year, the most in EIA data going back to 1920. A 2.5 million-barrel drop was projected in a Bloomberg survey. Supplies in Cushing, Oklahoma, the delivery point for West Texas Intermediate crude, climbed to a record.

U.S. crude inventories are more than 120 million barrels higher than the seasonal average
U.S. crude inventories are more than 120 million barrels higher than the seasonal average
Energy Information Administration

"There is a lot of downward pressure on this market," said Dan Heckman, senior fixed-income strategist in Kansas City, Missouri, at U.S. Bank Wealth Management, which oversees about $126 billion. "We don’t see any relief until the second half of next year. There’s just too much supply across the energy food chain."

Crude output rose by 23,000 barrels a day to 9.2 million. That’s down from a four-decade high of 9.61 million reached in June, weekly data show. The gain occurred a week after U.S. producers put 17 more rigs back to work drilling for oil. The current count stands at 538, close to the least in five years, according to data compiled by Baker Hughes Inc.

Two-Year Decline

Crude in New York is heading for its biggest two-year drop on record as the Organization of Petroleum Exporting Countries keeps pumping oil near record levels while output from Russia and the North Sea increases. Among the most important signals that the glut is subsiding will be oil production in the U.S., where output is likely to decline if prices hold at current levels, said Hans Van Cleef, energy economist at ABN Amro Bank NV in Amsterdam.

WTI for February delivery dropped $1.27, or 3.4 percent, to settle at $36.60 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 49 percent below the 100-day average at 2:40 p.m. The contract is down 31 percent this year.

Brent for February settlement fell $1.33, or 3.5 percent, to $36.46 a barrel on the London-based ICE Futures Europe exchange. Prices are down 36 percent this year. The European benchmark closed at a 14-cent discount to WTI.

Nationwide, crude stockpiles advanced to 487.4 million barrels in the week ended Dec. 25, according to the Energy Information Administration. Inventories at Cushing, which is also the biggest U.S. oil storage hub, rose to 63 million.

Enbridge Inc. shut a segment of its Ozark crude pipeline that crosses the Mississippi River Tuesday, company spokesman Michael Barnes said in an e-mail. The link runs from Cushing to Wood River, Ill.

"There’s nothing in these statistics that says you should go out and buy oil," said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. "Cushing supplies climbed to an all-time high last week. The pipeline shutdown makes everything worse."

Iran’s Return

OPEC has pumped above 30 million barrels a day the past 18 months, adding to the glut, according to data compiled by Bloomberg. Iran sees the potential for further oil-price declines as it plans to boost supply amid a lack of OPEC cooperation, said Rokneddin Javadi, head of National Iranian Oil Co., according to the Shana news agency. The nation plans to add 500,000 barrels a day of exports within a week of the removal, and 1 million within six months, he said.

Saudi Arabia, the world’s biggest crude exporter, will probably use a price of about $29 a barrel in its 2016 budget, according to estimates from Riyadh-based Jadwa Investment. Kuwait will use $30 a barrel, Alrai newspaper reported Wednesday.

"It looks like the oil market is going to end 2015 near the bottom," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "There’s not a ray of hope for the market as we approach the new year."

Diesel dropped to an 11-year low after the EIA data showed that inventories of distillate fuel, a category including diesel and heating oil, climbed the fifth time in six weeks. January diesel futures declined 5.04 cents, or 4.5 percent, to $1.0791 a gallon, the lowest close since July 2004.

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