Oil Falls Below $30 as Rising U.S. Crude Stockpiles Expand Glut

Trying to Predict Oil Prices Is a Fools Game: UBS
  • U.S. supplies climbed to 504.1 million barrels last week: EIA
  • Iran expects to start sale of new oil grade by June in delay

Oil dropped below $30 a barrel in New York after U.S. crude stockpiles rose to the highest level in more than eight decades.

West Texas Intermediate oil lost 3.7 percent, eroding a weekly gain. U.S. supplies expanded to 504.1 million barrels, the highest level since 1930, according to the Energy Information Administration. Saudi Arabia and Russia have proposed freezing output amid a worldwide surplus. Iraq said Thursday it backs any decision to support prices and balance the market without indicating whether it would cap its own output.

“We’re seeing follow-through from yesterday’s inventory report,” said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. “There’s a battle over the direction of the market. On one side, you have what may be the beginnings of an OPEC agreement to curb supply versus very bearish news on the storage side.”

Crude is down 20 percent this year after the Organization of Petroleum Exporting Countries abandoned output targets in early December amid swelling U.S. stockpiles and as Iran sought to boost exports to regain market share after sanctions were lifted. Companies are confronting rating downgrades and oil-producing nations face bigger-than-expected withdrawals from wealth funds to cover budget deficits as energy revenues fall.

WTI for March delivery, which expires Monday, declined $1.13 to settle at $29.64 a barrel on the New York Mercantile Exchange. Prices increased 0.7 percent this week. The more-active April futures dropped $1.18 to $31.75.

Seasonal Gains

Brent for April settlement fell $1.27, or 3.7 percent, to $33.01 a barrel on the London-based ICE Futures Europe exchange. Prices slipped 1 percent this week. The European benchmark oil closed at a $1.26 premium to April WTI.

An index of global equities fell for the first time in six days. Treasuries fell and the dollar strengthened after a report showed the cost of living in the U.S. excluding food and fuel increased by the most since 2011, reinforcing the Federal Reserve’s message that inflation will rise toward its target.

Nationwide crude stockpiles increased by 2.15 million barrels through Feb. 12, the EIA said. Inventories are at a record high in weekly data that started in August 1982. Supplies haven’t been at this level since 1930, based on monthly records dating back to 1920.

"If you look at the seasonal trend over the last five years we’re going have 560 million barrels in commercial storage by late April," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion in assets.

Cushing Record

Crude supplies at Cushing, Oklahoma, the biggest U.S. oil-storage hub, rose to a record 64.7 million barrels, the EIA said in a report Thursday. The site, which is the delivery point for WTI, has a working capacity of 73 million barrels.

Saudi Arabia and Russia offered this week to cap output near record levels as long as others follow. Iran, OPEC’s second-biggest producer until sanctions were intensified in 2012, supported the accord without saying whether it would participate in the freeze. Separately, Iran delayed the start date for sales of a new heavy oil grade until June to give buyers more time to test the crude in refineries.

"Despite all the talk about the Saudis, the Russians and the rest, in the end nothing happened," O’Grady said. " There was a lot of talk of a freeze but that’s it, but perhaps this is the beginning of a process that will lead to a cut in the future. The jury’s still out."

Norway’s central bank governor stepped up his warning on excessive use of the nation’s oil income as he predicted the government may need to withdraw almost $10 billion from its wealth fund this year. In October, Western Europe’s biggest crude producer unveiled a budget using a record amount of oil wealth to support growth.

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