Oil Caps Biggest Two-Day Loss Since 2009 on Crude Supply Glut

What Is Fair Value for Oil Medium Term?
  • Inventories forecast to expand by 4 million barrels: survey
  • Gasoline futures decline 7.6 percent to a seven-year low

Oil capped the biggest two-day drop in New York in almost seven years before government data forecast to show U.S. crude stockpiles gained, exacerbating a global glut. Gasoline tumbled to the lowest since 2008.

Crude fell 11 percent in two days. Supplies probably rose by 4 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday. The Russian leg of Venezuelan Oil Minister Eulogio Del Pino’s tour to persuade oil exporters to cut output gained little more than pledges for further discussion. BP Plc posted a 91 percent decreasein fourth-quarter earnings, while Exxon Mobil Corp.’s fell 58 percent.

"February, March and April will be very tough for the oil market," said Scott Roberts, portfolio manager and co-head of high yield who manages $2.7 billion at Invesco Advisers Inc. in Atlanta. "Oil supplies are so high that it’s reasonable to expect a retest of the recent lows during the next few months."

Oil has lost 19 percent this year amid volatility in global markets, brimming U.S. crude supplies and the outlook for increased exports from Iran after the removal of international sanctions. Royal Dutch Shell Plc had its debt rating cut to the lowest since Standard & Poor’s began coverage in 1990. Chevron Corp. and Hess Corp. were among the U.S. oil companies that had their rating trimmed by S&P Tuesday.

West Texas Intermediate for March delivery fell $1.74 to settle at $29.88 a barrel on the New York Mercantile Exchange. It’s the lowest close since Jan. 21. The volume of all futures traded was 40 percent above the 100-day average at 4:40 p.m.

U.S. Stockpiles

Futures declined from the close after the American Petroleum Institute was said to report U.S. crude supplies climbed 3.9 million barrels last week. WTI traded at $29.66 at 4:40 p.m.

Brent for April settlement dropped $1.52, or 4.4 percent, to end the session at $32.72 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude closed at an $1.11 premium to April WTI.

The S&P 500 Oil & Gas Exploration and Production Index dropped 4.3 percent.

U.S. crude stockpiles expanded for a third week through Jan. 22 to 494.9 million barrels, according to the EIA, the highest since 1930. Analysts project that the agency will report that gasoline inventories advanced a 12th week.

Gasoline futures for March delivery dropped 7.6 percent to settle at $1.0008 a gallon, the lowest settlement since December 2008. March diesel slipped 2.5 percent to $1.0109 a gallon.

The average price of regular gasoline at the pump nationwide was $1.79 a gallon on Monday, the lowest since January 2009, according to Heathrow, Florida-based AAA, a national federation of motor clubs.

Grossly Oversupplied

"We’re focused on how grossly oversupplied the market is and on the shaky demand picture," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "The hopes for OPEC and non-OPEC producers to come to an agreement to cut output have been dashed, as shown by the Venezuelans getting less than a bear hug in Moscow. We’re also expecting a fairly large inventory build tomorrow."

Igor Sechin, chief executive officer of the largest publicly traded producer Rosneft OJSC, discussed “possible coordination of efforts to normalize the situation on global oil markets” with Venezuela’s Del Pino in Moscow, the company said Tuesday. Russian Energy Minister Alexander Novak responded similarly to the Venezuelan minister Monday, saying he would be willing to attend a meeting with the Organization of Petroleum Exporting Countries and non-OPEC producers, should such a gathering occur.

Russia’s oil output reached a post-Soviet high in January. Production of crude and a light oil called condensate climbed 1.5 percent last month from a year earlier to 10.878 million barrels a day, according to the Energy Ministry’s CDU-TEK unit.

Company Pain

BP’s fourth-quarter profit adjusted for one-time items and inventory changes totaled $196 million, the London-based company said Tuesday in a statement. That missed the $814.7 million average estimate of 10 analysts surveyed by Bloomberg, and compares with year-earlier profit of $2.24 billion.

“We’ll see higher oil prices” with “supply and demand tightening in the second half of the year,” Chief Executive Officer Bob Dudley said in an interview with Bloomberg Television. The market will remain “tough and choppy” in the first half as it contends with a surplus of 1 million barrels a day, he said.

Shell’s long-term credit rating was reduced one level to A+, the fifth-highest investment grade, from AA-, and was placed on watch for another possible reduction, S&P said in a statement.

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