Crude Drops as API Reports Increase in U.S. Inventories

West Texas Intermediate dropped to a three-month low after an industry group reported an increase in inventories last week and as more Americans than forecast filed applications for unemployment benefits.

Prices slid 1.6 percent. Supplies climbed by 5.94 million barrels, according to the American Petroleum Institute yesterday. Jobless claims reached 358,000 last week, the Labor Department said. WTI rose 1.1 percent yesterday before Congress voted to end the government shutdown and raise the debt limit.

“The API numbers are bearish and suggest that we are heading into a period in the fall of fairly weak demand,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We are turning into a weak market for the next few weeks at least. People had kind of priced in the passage of a bill in Washington.”

WTI for November delivery fell $1.62 to $100.67 a barrel on the New York Mercantile Exchange, the lowest settlement since July 2. The volume of all futures was 48 percent above the 100-day average at 2:54 p.m.

North Sea Brent for December settlement slid $1.48, or 1.3 percent, to $109.11 a barrel on the London-based ICE Futures Europe exchange. The November contract expired yesterday. Volume was 9.5 percent below the 100-day average. December Brent crude was at a premium of $8.24 to the equivalent-month WTI contract. The gap between November contracts was $8.57 yesterday.

Cushing Supply

“The market is reacting to the big build that we saw in oil inventory from the API,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The market pretty much priced in the fact that the government would come back to work. Now we are focusing on more fundamental things.”

Crude inventories at Cushing, Oklahoma, the delivery point for futures traded on the Nymex, increased 291,000 barrels, the API said. Genscape Inc., which uses infrared cameras to measure storage levels, said today inventories at the hub rose 836,798 barrels last week to 36.9 million.

Gasoline supplies dropped by 2.21 million and distillate fuel, including heating oil and diesel, declined by 1.32 million, the API said. The Energy Information Administration, the Energy Department’s statistical arm, won’t release weekly stockpile data today because of the government shutdown.

The EIA will release a schedule for the resumption of its reports when that information becomes available, Jonathan Cogan, a spokesman for the agency in Washington, said in an e-mailed statement.

Supply Gains

Crude supplies climbed 14.9 million barrels in the previous three EIA reports. They reached 370.5 million in the seven days ended Oct. 4, the highest level in three months, according to the agency. The refinery utilization rate decreased to 86 percent, the least since April.

API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA for its weekly survey.

“We’re moving lower on higher inventories today,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The API showed a substantial build in supply as refinery run rates headed south. Given refinery runs and output we should continue to see builds for a considerable time.”

Jobless Claims

Last week’s jobless claims exceeded the 335,000 forecast by economists surveyed by Bloomberg. Federal workers filed about 70,000 claims two weeks ago, the Labor Department report showed. Those were tallied in a separate category and didn’t influence the headline reading, though contractors’ furloughs will count, a Labor Department spokesman said.

“The data was not great,” Flynn said. “The jobless claims were higher than expected. There are signs that the economy is slowing a little bit.”

The passage last night of the congressional deal by wide margins -- an 81-18 vote in the Democratic-led Senate, followed by a 285-144 vote in the Republican-controlled House -- allows the U.S. to avoid default and ends the shutdown that began Oct. 1 and has taken $24 billion out of the economy.

President Barack Obama signed the bill just after midnight, according to a White House statement. The measure puts government workers back on the job as soon as today and permits the U.S. to continue paying its debts, benefits and salaries.

Implied volatility for at-the-money WTI options expiring in December was 19.6 percent, up from 20.8 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 792,062 contracts as of 2:57 p.m. It totaled 752,832 yesterday, 29 percent higher than the three-month average. Open interest was 1.82 million contracts.

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