Oil Trades Near Two-Month Low After U.S. Crude Supplies Increase

  • U.S. crude supply at highest seasonal level in 85 years: EIA
  • IEA sees `massive cushion' worldwide on record production

A storage tanker of crude oil near Bradford, Pennsylvania.

Photographer: Robert Nickelsberg/Getty Images

Oil was little changed in New York after falling below $40 a barrel for the first time since August as producers’ output swelled global inventories to a record.

U.S. crude stockpiles climbed to 487.3 million barrels last week, the highest for this time of year since 1930, government data show. Oil inventories have expanded to almost 3 billion barrels because of growing output in OPEC and elsewhere, the International Energy Agency said in a report on Friday.

Crude has dropped by almost half in the past year as the Organization of Petroleum Exporting Countries pumped above its collective quota and Russian output rose to a post-Soviet high, outpacing demand growth. Iran is pushing to regain oil sales lost to sanctions after agreeing in July to accept limits on its nuclear work in return for market access.

"There’s a massive inventory overhang so the market will remain very soft," said Adam Wise, who helps run a $7 billion oil and natural gas bond and private equity portfolio as a managing director at John Hancock in Boston. "There’s still inventory growth, Iran is planning to boost output by 500,000 barrels, there’s no sign OPEC will come to an agreement on Dec. 4, and there are demand concerns in Europe and Asia.

WTI, Brent

WTI for December delivery gained 8 cents to settle at $40.75 a barrel on the New York Mercantile Exchange. Futures dropped as much as 1.9 percent to $39.91 earlier, the lowest intraday price since Aug. 27. The volume of all futures traded was 21 percent above the 100-day average.

Brent for January settlement rose 57 cents, or 1.3 percent, to end the session at $44.14 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude closed at a $2.19 premium to January WTI.

U.S. crude supplies are more than 100 million barrels above the five-year seasonal average, Energy Information Administration data show. Inventories at Cushing, Oklahoma, the delivery point for WTI futures and the nation’s biggest oil-storage hub, rose 1.5 million barrels last week.

"It looks like the drop in WTI is a reaction to the further build in crude stocks at Cushing," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "Brent doesn’t seem to mind, which is a good sign that’s the case."

New Lows

Supplies of distillate fuel, the category that includes diesel and heating oil, fell 791,000 barrels to 140.3 million, leaving stockpiles 22 percent higher than at the same time last year.

Diesel for December delivery advanced 1.23 cents, or 0.9 percent, to close at $1.3804 a gallon.

Total oil inventories in developed nations increased by 13.8 million barrels in September, a month when they typically decline, according to the IEA. The pace of gains slowed in the third quarter, although growth remained “significantly above the historical average.” There are signs some fuel-storage depots in the Eastern Hemisphere have been filled to capacity, it said.

"The market is being overwhelmed by rising supply," said Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital LLC in Miami. "We could test the six-year lows reached in August at any moment. We will either break through or put in a bottom." Oil dropped to an intraday low for the year of $37.75 on Aug. 24.

Unconcerned Iranians

Iran, OPEC’s fifth-biggest producer, is unconcerned about the impact additional supply may have on crude prices, which already reflect the expected increase in shipments, Oil Minister Zanganeh said at a news conference in Tehran. The nation will inform the 12-member group after it increases exports, he said.

OPEC’s board of governors was unable to agree on the group’s long-term strategy plan and won’t present it to oil ministers when they meet on Dec. 4 in Vienna, said two OPEC delegates with knowledge of the matter. Approval of the plan is delayed until at least the next meeting of governors in 2016, said the delegates, who asked not to be identified because the plan isn’t public.

"There’s no real physical tightness to limit the downside," Evans said. "It’s also important to keep in mind that falling below $40 doesn’t mean we’re destined to fall to $38, $30 or any other level."

Before it's here, it's on the Bloomberg Terminal.