Oil Drops to Eight-Week Low as Supplies Seen Rising

Oil fell to an eight-week low amid estimates that U.S. inventories rose and as an Italian political stalemate spurred concern that Europe’s debt crisis may worsen.

West Texas Intermediate declined 0.5 percent as supplies probably climbed to a seven-month high last week, a Bloomberg survey showed before government data tomorrow. A political vacuum of at least a month loomed in Italy after an inconclusive election threatened to cause volatility in financial markets. Oil pared losses as U.S. consumer confidence jumped more than forecast in February and the U.S. housing market improved.

“People are looking more toward an inventory build for tomorrow,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “The Italy election didn’t go well, and that’s what spurred the selloff. The economic data are much better than expected.”

WTI for April delivery fell 48 cents to $92.63 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 31. Prices have decreased 16 percent in the past year. The volume of all futures traded was 23 percent below the 100-day average for the time of day at 4:35 p.m.

Prices were little changed after the American Petroleum Institute reported oil inventories gained 904,000 barrels last week to 373.4 million. Futures slid 46 cents, or 0.5 percent, to $92.65 a barrel in electronic trading at 4:35 p.m. Oil was traded at $92.67 before the report was released at 4:30 p.m.

Brent for April settlement dropped $1.73, or 1.5 percent, to end the session at $112.71 a barrel on the London-based ICE Futures Europe exchange. Volume was 23 percent above the 100-day average for the time of day. The European benchmark crude’s premium over WTI shrank for the first time in four days to $20.08, the narrowest level in three weeks.

U.S. Supply

U.S. crude inventories probably rose 2.5 million barrels last week to 378.9 million, the highest level since July 20, according to the median estimate of 10 analysts surveyed by Bloomberg before an Energy Information Administration report. That would be a sixth weekly gain, the longest rising streak since May.

Domestic production rose to 7.12 million barrels a day in the week ended Feb. 15, the most since August 1992, the EIA, the Energy Department’s statistical arm, reported last week. Output is 22 percent higher than a year ago.

“We still have plenty of supplies here,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There is a much more bearish sentiment about the economic outlook” in Europe.

Italian party chiefs began jockeying to forge a coalition of rivals and head off a second vote in the aftermath of the inconclusive election. Italy’s stocks and bonds fell, while the cost of insuring its debt against default climbed to the highest level this year.

‘Big Build’

“We are expecting another big build in crude tomorrow,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “If Europe gets worse, it’s going to pull back energy demand.”

Oil also dropped as gasoline tumbled and as world powers urged Iran to curb its nuclear activities in exchange for the easing of some sanctions.

Gasoline futures for March delivery fell 2.6 percent to $2.9816 a gallon, the lowest level since Jan. 29 and the biggest one-day drop since Nov. 7, as Brent and refined products in Europe declined.

An offer to Iran by the U.S. and its partners would ease banking, petrochemical and gold sanctions, according to two officials close to the negotiations that started today in Almaty, Kazakhstan. In exchange, Iran must agree to cease its output of 20 percent enriched uranium, they said.

The talks are between Iran and a group of six countries -- the U.S., U.K., France, Germany, Russia and China.

Iran Talks

“The market seems to be taking the current talks with Iran a bit more seriously, although we’d say a breakthrough remains unlikely,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York, in an e-mail. “Europe is still coming to grips with the implications of the Italian election deadlock.”

Oil pared losses after the Conference Board’s index of consumer confidence climbed to 69.6, exceeding all forecasts in a Bloomberg survey of economists, from a revised 58.4 in January, data from the New York-based private research group showed today.

U.S. Homes

The S&P/Case-Shiller index of property values increased 6.8 percent from December 2011, the biggest year-to-year gain since July 2006. The median projection of 30 economists surveyed by Bloomberg called for a 6.6 percent advance. New home sales surged 15.6 percent to a 437,000 annual pace last month, exceeding the highest forecast in a Bloomberg survey, figures from the Commerce Department showed.

Electronic trading volume on the Nymex was 375,256 contracts as of 4:36 p.m. It totaled 458,827 contracts yesterday, 16 percent below the three-month average. Open interest was 1.65 million contracts.

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