Brent Falls to Lowest Since July on High Stocks, ECB CutJake Rudnitsky
Brent crude dropped to its lowest level in more than four months amid rising stockpiles in the U.S. and after the European Central Bank unexpectedly cut its benchmark rate to a record low.
The North Sea grade was down as much as 1.2 percent and heading for a third day of declines. U.S. crude inventories increased for a seventh week, expanding by 1.58 million barrels to 385.4 million, according to the Energy Information Administration. The dollar strengthened against the euro after the ECB cut its main refinancing rate.
“Its a bit of a perfect storm for crude given very weak Brent technical support, plentiful supplies and seasonally slow refining demands,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said. “A stronger dollar isn’t helping.”
Brent for December delivery fell as low as $104.01 a barrel in electronic trading on the London-based ICE Futures Europe exchange, and was at $104.24 at 1:40 p.m. The contract closed at $105.24 yesterday, its lowest since July 2. The volume of all futures traded was more than double the 100-day average.
West Texas Intermediate crude was down 26 cents at $94.54 a barrel in electronic trading on the New York Mercantile Exchange. Brent, the European benchmark crude, was at a premium of $9.70 to WTI compared with $10.44 yesterday, the narrowest since Oct. 25.
Both Brent and WTI are in contango, a situation where front-month futures are cheaper than the second month, amid diverging views as to whether this pattern will be sustained into 2014.
Temperatures through Nov. 10 will be as much as 3 degrees Celsius (5.4 degrees Fahrenheit) higher than normal in western Europe and the U.K. and 5 degrees warmer than usual in central and eastern Europe, Byron Drew, lead forecaster MetraWeather in Reading, England, said Nov. 4. Four weather forecasters surveyed by Bloomberg News since Oct. 30 predicted above-average European temperatures for November.
October, the first month of the winter heating season in temperate countries, was warmer than expected from the Iberian peninsula to the U.K., MDA Information Systems LLC in Gaithersburg, Maryland, said in an e-mailed report.
“Downward pressure is coming from high stock levels in the U.S., U.S. exports of products to Europe and a mild onset to winter in the northern hemisphere,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London.
U.S. gasoline stockpiles shrank for a fourth week to 210 million barrels in the seven days ended Nov. 1, the EIA, the Energy Department’s statistical unit, said yesterday in a report. That’s the lowest level since November last year.
The U.S., the world’s largest oil consumer, will account for about 21 percent of global oil demand this year, compared with 11 percent for China, forecasts from the International Energy Agency show.
Distillate inventories, including diesel and heating oil, fell by 4.9 million barrels to 117.8 million, according to the EIA. Analysts in a Bloomberg survey estimated a median drop of 1.5 million.
Price decreases in the past week reflect “growing pains” as the market adjusts globally to higher U.S. shale production, according to Goldman Sachs Group Inc.
“This sharp decline in global oil prices is not the start of a significant shift in the global oil balance,” Jeffrey Currie, the bank’s head of commodities research in New York, said in an e-mailed report. “This adjustment process is likely masking a very gentle tightening in the global balance that we still believe will become apparent as refineries come out of maintenance, particularly should the return of Libyan oil production continue to prove elusive.”
The need for crude from the Organization of Petroleum Exporting Countries, which produces about 40 percent of the world’s oil, will fall by 1.1 million barrels a day to 29.2 million barrels a day between 2013-18, the Vienna-based group said today in its annual World Oil Outlook.
Oil production from shale formations in the U.S. and Canada is seen climbing to 4.9 million barrels a day in 2018, compared with an estimate of 1.7 million barrels a day in last year’s report.
Elsewhere, the alleged fixing of oil prices is unlikely to sway traders from using Brent crude as a benchmark for transactions in the $5.7 trillion commodity market, according to analysts and brokers from London to Tokyo.
Four long-time traders claimed in a lawsuit that some of the world’s biggest oil companies conspired with energy traders to manipulate spot prices for Brent for more than a decade. The case is one of at least seven U.S. lawsuits alleging price-fixing in the London-based Brent market and comes as global regulators scrutinize financial measures after fining banks about $2.5 billion for distorting other benchmarks.