Oil Heads for Biggest Weekly Drop in 8 Months Amid Ample Supply

What's Keeping the Lid on Oil Prices?
  • U.S. crude stockpiles rose 2.28 million barrels last week: EIA
  • Russian minister sees no need for oil producers to cap output

Oil tumbled, heading for the biggest weekly decline in eight months, after U.S. government data showed crude supplies at the highest seasonal level in more than 20 years.

Futures have dropped 9.3 percent in four days in New York. Supplies rose by 2.28 million barrels last week, according to the Energy Information Administration. Russian Energy Minister Alexander Novak said he sees no need for oil-producing nations to impose an output cap given current price levels. The comments come before OPEC members and other oil producers meet in Algiers later this month.

"Inventories are rising and excess supply will grow," said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. "We’re not going to be comfortable pushing prices above $50 with only North America reducing output while the rest of the world is running all out."

Oil rose 7.5 percent in August amid speculation that the Sept. 26-28 talks may lead to an agreement to manage the market. A cap on production would be positive, Saudi Arabia’s Energy Minister Khalid Al-Falih said in an interview last week, while ruling out an output cut. A freeze deal between members of the Organization of Petroleum Exporting Countries and other producers was proposed in February but a meeting in April ended with no final accord.

West Texas Intermediate for October delivery declined $1.54 to settle at $43.16 a barrel on the New York Mercantile Exchange. It’s the lowest close since Aug. 10. WTI is heading for the biggest weekly decline since the week ended Jan. 15. Total volume traded was 9.5 percent above the 100-day average at 2:55 p.m.

U.S. Stockpiles

Brent for November settlement slid $1.44, or 3.1 percent, to $45.45 a barrel on the London-based ICE Futures Europe exchange, also the lowest close since Aug. 10. October Brent futures fell 2.8 percent to expire at $47.04 on Wednesday.

For Daniel Yergin’s view of the market and a potential freeze deal, click here.

U.S. crude stockpiles rose to 525.9 million barrels through Aug. 26, the EIA reported Wednesday. Imports increased 275,000 barrels a day to 8.92 million last week, the highest since September 2012, while production slipped 60,000 barrels a day to 8.49 million. Supplies at Cushing, Oklahoma, the delivery point for WTI futures and the nation’s biggest storage hub, fell to 63.9 million.

Failed Proposal

An initiative between OPEC countries and non-members such as Russia to limit output failed in April. That proposal failed after Iran declined to attend the meeting in Doha and Saudi Arabia refused to proceed with the deal without the participation of its Persian Gulf rival.

Iranian Oil Minister Bijan Namdar Zanganeh said that the country expects to recover its market share -- eroded during years of international sanctions -- as a condition of co-operating with OPEC, according to an Aug. 26 report by news service Shana.

Saudi Arabia won’t boost output to capacity and flood the market, Al-Falih said in an interview with Al-Arabiya television. The kingdom isn’t concerned about global demand in spite of a drop in prices and a slower economy, he said.

Oil-market news:

  • Storms have shut 15.2 percent of Gulf of Mexico oil production, the U.S. Bureau of Safety and Environmental Enforcement said on website.
  • U.S. weekly fuel demand was overstated in the first half of the year as the EIA under-counted exports, the agency said on its website.
  • BP Plc restarted its Atlantis field in the Gulf of Mexico as Tropical Storm Hermine moved away from area, according to a person familiar with the situation.
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