Oil Tumbles to Two-Month Low as U.S. Crude Stockpiles Increase

  • Crude inventories climbed 4.22 million barrels last week: EIA
  • OPEC says oil inventory surplus biggest in at least a decade

Oil dropped to the lowest level in more than two months after U.S. crude supplies climbed for a seventh week, prolonging the global surplus.

Inventories rose 4.22 million barrels last week, according to an Energy Information Administration report. Analysts surveyed by Bloomberg had projected a 1.3 million-barrel gain. U.S. refineries boosted their operating rates a fourth week while crude production increased. West Texas Intermediate oil will fall to the $10-to-$20 a barrel range, Thornhill Securities Inc.’s A. Gary Shilling said on Bloomberg Radio.

Oil has slumped 46 percent the past year amid signs a global glut will persist as OPEC continues to pump more than its collective quota. Surplus oil inventories are at the highest level in at least a decade because of increased global production, according to the Organization of Petroleum Exporting Countries.

"There’s just too much bloody supply," Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion, said by phone. "This is usually a bullish time of year when refinery activity picks up, boosting demand. We’re seeing refinery activity pick up, but that’s being overwhelmed by supply."

U.S. Stockpiles

WTI for December delivery dropped $1.18, or 2.8 percent, to close at $41.75 a barrel on the New York Mercantile Exchange. It’s the lowest settlement since Aug. 26. The volume of all futures traded was 37 percent above the 100-day average at 3:02 p.m.

Brent for December settlement, which expires Friday, slipped $1.75, or 3.8 percent, to $44.06 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since Aug. 26. The more-active January contract fell $1.42 to $45.19. The European benchmark oil closed at a $2.31 premium to WTI, down from $2.88 Wednesday.

Shilling, who is also a Bloomberg View columnist, said he doubled his oil-short positions today in his comments on Bloomberg Radio.

U.S. crude stockpiles climbed to 487 million barrels in the week ended Nov. 6, the highest for this time of year since April, when it climbed to 491 million. Supplies are more than 100 million barrels above the five-year seasonal average and the highest for this time of year in more than 80 years, according to the EIA.

Refinery Comeback

Inventories at Cushing, Oklahoma, the delivery point for WTI futures and the nation’s biggest oil-storage hub, rose 2.24 million barrels last week, the biggest gain since March.

Refineries boosted operating rates by 0.8 percentage point to 89.5 percent last week. U.S. oil processors boosted utilization in November during four of the past five years as the annual maintenance period -- timed to a post-summer lull in fuel demand -- finishes and plants gear back up for winter.

"Refinery utilization is going to keep rising," Matt Sallee, who helps manage $14.6 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas, said by phone. "Inventories are going to start drawing in short order."

Crude Output

Crude production grew by 25,000 barrels a day to 9.19 million. That’s down from a four-decade high of 9.61 million reached in June, weekly data show. Last week’s output gain occurred as the number of active oil rigs in the U.S. dropped to 572, the least in five years, according to data compiled by Baker Hughes Inc.

"The rig count is down more than 100 since late August," Sallee said. "The declines in the rig count will have an impact on production."

Stockpiles in developed economies are 210 million barrels higher than their five-year average, exceeding the 180 million-barrel glut that accumulated in early 2009 after the financial crisis, OPEC said in a report. That was the only other occasion in the past 10 years when oversupplies have topped 150 million barrels.

Cutting OPEC’s annual output by 1.6 percent would boost oil prices “significantly,” Ecuador’s President Rafael Correa said at a meeting in Riyadh, Saudi Arabia, according to a statement published in the president’s official gazette. The 12-member group pumped 32.2 million barrels a day in October, according to data compiled by Bloomberg. It’s due to meet in Vienna on Dec. 4 to discuss production.

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