Oil Caps Biggest Weekly Loss Since August as Supply Glut Deepensby and
Price hits 3-week low as supplies stay above seasonal average
China cut its benchmark lending rate to counter slowdown
Oil capped the biggest weekly decline since August as expanding U.S. crude stockpiles exacerbate a global glut.
West Texas Intermediate crude fell to a three-week low, widening its discount to Brent. U.S. inventories expanded for a fourth week through Oct. 16, keeping supplies more than 100 million barrels above the five-year seasonal average, according to the Energy Information Administration. Crude dropped even after China cut interest rates to help prop up its slowing economy.
Oil failed to sustain a rally above $50 a barrel earlier this month amid signs the global surplus will drag out longer as the Organization of Petroleum Exporting Countries pumps above its target and Iran prepares to raise exports once sanctions are lifted. Doubts about the strength of demand growth in China added to the pressure on commodity prices.
"We should continue to see these large builds and additional supplies," said James Cordier, founder of Optionsellers.com in Tampa, Florida. "It’s going to be difficult to build the bullish case."
WTI for December delivery dropped 78 cents, or 1.7 percent, to end at $44.60 a barrel on the New York Mercantile Exchange, the lowest since Sept. 28. Prices are down 5.6 percent this week, the most since the five days ended Aug. 7.
Brent for December settlement fell 9 cents to $47.99 a barrel on the London-based ICE Futures Europe exchange, down 4.9 percent for the week. The European benchmark crude closed at a premium of $3.39 to WTI, the widest since Oct. 8.
The U.S. oil rig count slid by 1 this week to 594, adding to the 80 sidelined in the previous seven weeks and extending a five-year low, Baker Hughes Inc. said.
Crude also fell as the dollar strengthened, reducing oil’s investment appeal. The Bloomberg Dollar Spot Index gained for a seventh day.
"The stronger dollar is pushing oil lower," said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. "The market has further downside risk."
U.S. crude stockpiles rose for a fourth week to 476.6 million barrels and were just 3 percent lower than their highest level in at least three decades in April, while production remained unchanged at 9.1 million barrels a day, according to EIA data. Supplies at Cushing, Oklahoma, the delivery point for WTI futures and the biggest U.S. oil-storage hub, fell by 78,000 barrels, the first drop in three weeks.
Oil-service companies are starting a third round of job cuts as hopes fade for an oil price rebound this year. Weatherford International Plc is tripling its previously announced reductions to 3,000. Baker Hughes Inc. is letting go of another 3,700 workers after trimming 2,500 in the second quarter. Schlumberger Ltd., which said in July it was done with layoffs after 20,000 global cuts, will resume staff reductions at an unspecified level.
“We have to be prepared for more volatility,” ConocoPhillips Chief Executive Officer Ryan Lance said Thursday at the Boston College Chief Executives Club. The oil industry has to reinvest heavily to keep output flat and many areas “just aren’t economic at $45,” he said.
China’s central bank cut its benchmark lending rate and reserve requirements for banks, stepping up efforts to cushion a deepening economic slowdown. European Central Bank President Mario Draghi said Thursday the bank was weighing the need for more stimulus and would re-examine its quantitative-easing plan in December.
Investors will also look for clues to the global economy’s strength and a timing on when the U.S. will raise interest rates when Federal Reserve policy makers meet next week.