Oil Tumbles After U.S. Fuel Stockpiles Unexpectedly Increase

Oil Prices Stuck in Supply and Demand Trading Range
  • Gasoline inventories rose 1.21 million barrels last week: EIA
  • Crude supplies fell an eighth week, longest stretch in a year

Oil tumbled after a government report showed U.S. fuel inventories unexpectedly grew, adding to concerns about oversupply.

Futures dropped 4.4 percent in New York. Gasoline supplies rose 1.21 million barrels last week, Energy Information Administration data released Wednesday show. Analysts surveyed by Bloomberg had forecast a 1-million barrel drop. Demand for the fuel fell during the week that included the Independence Day holiday -- usually a peak consumption period -- as output increased.

"The stockpile data is driving the market," said Chip Hodge, who oversees a $12 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston. "These are pretty robust product stocks. We’re looking ahead to fall starting before long, and with it lower fuel demand."

Oil has traded between $44 and $51 a barrel in the last month after almost doubling from a 12-year low in February amid a spate of supply disruptions and falling U.S. output. The rate of decline in non-OPEC supply will slow next year, the Organization of Petroleum Exporting Countries said in a report.

West Texas Intermediate crude for August delivery fell $2.05 to settle at $44.75 a barrel on the New York Mercantile Exchange. Futures increased 4.6 percent on Tuesday, the biggest one-day gain since April 8. Total volume traded was 43 percent higher than the 100-day average at 2:53 p.m.

Brent for September settlement dropped $2.21, or 4.6 percent, to $46.26 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a 82-cent premium to WTI for September delivery.

Outpacing Demand

U.S. gasoline demand dropped 0.9 percent to 9.67 million barrels a day in the week ended July 8 as refiners produced 10.2 million barrels a day of gasoline a day.

"The gasoline data is very bearish," said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida. "Gasoline production is outstripping demand by more than 500,000 barrels a day."

Stockpiles of distillate fuel, a category that includes diesel and heating oil, surged 4.06 million barrels, the most since January.

Gasoline futures for August delivery dropped 3.6 percent to settle at $1.3784 a gallon. August diesel tumbled 5.6 percent to $1.3809, the lowest close since May 10.

Seasonal Highs

U.S. crude supplies fell 2.55 million barrels to 521.8 million last week, EIA data show. Inventories remain at the highest seasonal level in at least a decade. Analysts surveyed by Bloomberg had forecast a 3 million barrel decline. The industry-funded American Petroleum Institute said stockpiles climbed 2.2 million barrels last week.

"Crude supplies are down a little, but it doesn’t change the overall picture," Finlon said. "They remain at historic highs for this time of the year."

Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, decreased by 232,000 barrels to 63.9 million, the lowest levels since January, the report showed.

Middle East production has climbed to a record while U.S. output slumps, a sign that OPEC’s strategy of defending market share is succeeding, the International Energy Agency said. Middle Eastern output exceeded 31 million barrels a day for a third month in June amid near-record supply from Saudi Arabia, the Paris-based agency said in its monthly market report released Wednesday.

"The market has gone from hugely oversupplied to roughly balanced," said Michael Wittner, the New York-based head of oil-market research at Societe Generale SA. "We have massive crude inventories to work through, which will take a lot of time."

Oil-market news:

  • Oil traders increased the fleet of ships deployed in the North Sea to store crude, the latest sign of faltering demand that has triggered the biggest build up of stockpiles at sea since 2009.
  • Libya’s government of national unity is working to reopen four of the country’s biggest oil ports after securing a deal to unify the fractured state energy company.
  • Nigerian oil union Pengassan suspended a strike, Emmanuel Ojugbana, a spokesman for the union, said by phone Wednesday from Abuja.
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