Crude Caps Longest Losing Streak This YearMoming Zhou
West Texas Intermediate crude fell for a fifth day, capping the longest stretch of declines since December, as better-than-expected U.S. jobless claims raised concern that the Federal Reserve will trim stimulus measures.
Prices dropped 0.9 percent. About 333,000 American workers applied for unemployment benefits last week, below the 335,000 estimate by economists in a Bloomberg survey. The Fed may begin curbing bond purchases in September, Fed Bank of Chicago President Charles Evans said Aug. 6. U.S. crude output jumped to the most since 1989 and gasoline supplies are at the highest seasonal level since 1990, government data showed yesterday.
“People are worried about tapering with the good economic data,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The market is looking heavy because the U.S. is producing more and more oil. You have to respect the fact that fundamentally we are very well supplied.”
WTI for September delivery slid 97 cents to $103.40 a barrel on the New York Mercantile Exchange, the lowest settlement since July 30. The volume of all futures traded was 12 percent above the 100-day average at 3:45 p.m. Prices have tumbled 4.2 percent since Aug. 1. They last decreased for five consecutive days in the period ended Dec. 10.
Brent for September settlement retreated 76 cents, or 0.7 percent, to $106.68 a barrel on the London-based ICE Futures Europe exchange. Volume was 3.8 percent above the 100-day average. The European benchmark’s premium to WTI strengthened by 21 cents to $3.28, the widest level since July 30.
“Crude is on its way to test $100,” said Jeff Grossman, president of New York-based BRG Brokerage and a Nymex floor trader. “The market went up too high. There is nothing to support it.”
The number of jobless claims in the four weeks ended Aug. 3 declined to 335,500 on average, the lowest level since November 2007, the Labor Department reported. Fed policy makers are watching the job market to determine when to begin scaling back the central bank’s $85 billion in monthly bond purchases.
Evans, who has been among the most vocal proponents of record monetary accommodation, said the central bank is likely to end the bond-buying program in mid-2014. He is a voting member of the Federal Open Market Committee this year and has consistently supported increased stimulus.
U.S. crude output gained 18,000 barrels a day last week to 7.56 million, the Energy Information Administration, the Energy Department’s statistical arm, said yesterday. Production has advanced 8.2 percent this year after a 19 percent gain in 2012.
Crude surged 8.8 percent in July, the biggest monthly gain since August 2012, as U.S. stockpiles slumped and on concern that political turmoil in Egypt may disrupt oil supplies from the Middle East. Inventories tumbled 29.9 million barrels in the four weeks ended July 19, the most for such a period since 1982, EIA data showed. Stockpiles fell 1.32 million last week.
“We finally passed the point of people worrying about big draws,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “Crude oil prices should not be up here. The longs are bailing out and the speculation trade is coming off.”
Hedge funds and other money managers reduced bullish bets on WTI by 4.6 percent in the week ended July 30, the first decline in more than a month, according to the Commodity Futures Trading Commission’s July 26 Commitments of Traders report. Net-long positions, or wagers that prices will increase, fell to 318,819 futures and options combined from 334,094 the prior week, the highest level in CFTC data going back to 2006.
WTI’s decline “is now getting nasty as large speculative long positions are getting squeezed out,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, in an e-mail.
Crude also followed drops in gasoline as the cost of meeting renewable fuel rules sank, easing concern that higher costs to blend ethanol would curb fuel supply. The 2013 Renewable Identification Numbers, or RINs, dropped to 67 cents at 3:21 p.m. in New York, the lowest level since April 25, data compiled by Bloomberg showed.
Gasoline supplies jumped 135,000 barrels to 223.6 million last week, the highest level for this time of year in EIA data going back to 1990.
“The larger problem is the product weakness from a fundamental point of view,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “There is some excess length in WTI and there may be long liquidations.”
Gasoline for September delivery fell 1.35 cents, or 0.5 percent, to $2.8576 a gallon, the sixth straight drop.
“The market is off because RINs are getting crushed,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “RINs are demolishing the price of gasoline and taking everything else down.”
Implied volatility for at-the-money WTI options expiring in October was 21.2 percent, up from 20.7 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 627,074 contracts as of 3:45 p.m. It totaled 647,912 contracts yesterday, 0.7 percent below the three-month average. Open interest was a record 1.89 million contracts.