Crude Falls to Two-Week Low as U.S. Supply Gains Seen Resuming

  • Oil supply fell 559,000 barrels, fuel inventories rose: EIA
  • IEA sees glut lasting until late 2017 as output growth slows

Oil fell to the lowest in almost two weeks on speculation that a drop in U.S. crude inventories is only temporary and supplies will swell again as refineries shut down for maintenance in coming weeks.

Futures dropped 2.9 percent in New York. Crude stockpiles slipped 559,000 barrels last week, the Energy Information Administration said. That contrasts with the 4-million barrel gain forecast by analysts surveyed by Bloomberg and a 1.44 million barrel rise reported Tuesday by the industry-funded American Petroleum Institute. Supplies tumbled the most in 17 years the prior week as imports and output were disrupted in the Gulf of Mexico.

"I wouldn’t read a lot into the last couple weeks of crude inventory data," said Joe Bozoyan, an equity portfolio manager who focuses on energy at John Hancock in Boston. Hurricane Hermine was partly to blame for supply disruptions, he said. "The decline was probably due to a backlog related to the storm. The market remains well supplied and inventories could rise in the weeks ahead because of refinery maintenance."

Oil has fluctuated since rallying in August amid speculation the Organization of Petroleum Exporting Countries and Russia would agree on measures to stabilize the market at a meeting later this month. Record output from OPEC’s Gulf members is compounding the global glut which will last into next year, the International Energy Agency said Tuesday. The agency last month predicted the market would return to equilibrium this year.

Ample Stockpiles

West Texas Intermediate for October delivery fell $1.32 to settle at $43.58 a barrel on the New York Mercantile Exchange. It’s the lowest close since Sept. 1. Total volume traded was 45 percent above the 100-day average at 2:36 p.m.

Brent for November settlement dropped $1.25, or 2.7 percent, to $45.85 a barrel on the London-based ICE Futures Europe exchange. The global benchmark was at a $1.70 premium to WTI for November delivery.

"The IEA spooked people yesterday," said Matt Sallee, who helps manage $15 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas. "The rally a few weeks ago was just short covering on talk that OPEC would come to an agreement to cut supply later this month. There’s a feeling now that even if they come to an agreement, there won’t be much to it."

U.S. crude supplies fell to 510.8 million in the week ended Sept. 9, according to EIA data. Inventories reached 543.4 million barrels in the week ended April 29, the highest since 1929. Stockpiles remain at the highest seasonal level in more than 20 years.

Import Recovery

Crude imports, which rose 14 percent to 8.06 million barrels a day last week, are down from 8.92 million barrels in the week ended Aug. 26 before Hermine arrived in the Gulf.

Refineries cut operating rates by 0.8 percentage points to 92.9 percent of capacity. Plants usually cut back on operations in September and October after the peak-demand driving season comes to an end.

Stockpiles of distillate fuel, a category that includes diesel and heating oil, rose 4.62 million barrels to 162.8 million, the highest since April. Gasoline supplies climbed 567,000 barrels to 228.4 million last week.

"Sentiment in the market is very negative," Sallee said. "There were big builds in the products and imports rose. There would have to be a pretty significant crude decline to get this market to turn around."

Diesel futures for October delivery tumbled 2.9 percent to $1.3817 a gallon, the lowest close since Aug. 10. October gasoline slipped 1.1 percent to $1.3615.

Nigeria, Libya

Two OPEC members whose oil shipments were crushed by domestic conflicts are preparing to add hundreds of thousands of barrels to world markets within weeks.

In Nigeria, Exxon Mobil Corp. was said to be ready to resume shipments of Qua Iboe crude, the country’s biggest export grade, which averaged about 340,000 barrels a day in shipments last year, according to Bloomberg estimates. Libya’s state oil company on Wednesday lifted curbs on crude sales from the ports of Ras Lanuf, Es Sider and Zueitina, potentially unlocking 300,000 barrels a day of supply

"The market is still digesting a bearish IEA report from yesterday," said Mike Wittner, head of oil-market research at Societe Generale SA in New York. "We also have bearish news from Nigeria and Libya. The Qua Iboe force majeure is said to be ending, which should result in the resumption of flows, and there are some reports of Libyan port openings."

Oil-market news:

  • China’s crude oil imports may rise further in the coming months as tumbling domestic output leaves refiners looking overseas for supplies, according to analysts from Natixis SA and Energy Aspects Ltd.
  • Oil may drop below $40 a barrel in the first quarter on oversupply, according to JBC Energy’s Richard Gorry
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