Oil Falls to Three-Month Low as U.S. Supply Gain Worsens Glut

Updated on
  • Nationwide crude inventories rose by 252,000 barrels last week
  • WTI dropped below $40 on Wednesday for first time since August

Oil Declines on U.S. Stockpiles Glut

Oil dropped to the lowest level in almost three months as government data showed U.S. crude inventories rose to the highest for this time of year since 1930.

Crude fell 0.5 percent in New York after dipping below $40 a barrel Wednesday for the first time since August. Stockpiles rose by 252,000 barrels last week, keeping supplies more than 100 million barrels above the five-year seasonal average, according to the Energy Information Administration. U.S. refineries processed more oil as they ended seasonal maintenance.

"There’s very little to offer support to the market," Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. "Refineries are nearly out of turnarounds and we still managed to get a crude-supply gain."

Oil has slumped about 45 percent in the past year amid speculation the global glut will persist as the Organization of Petroleum Exporting Countries continues to pump above its collective quota and Russian output rises to a post-Soviet era high. A warmer-than-average winter could weaken heating-fuel demand enough to trigger a drop in the price of crude to $20 a barrel, according to Goldman Sachs Group Inc.

Refinery Rates

West Texas Intermediate for December delivery, which expires Friday, fell 21 cents to settle at $40.54 a barrel on the New York Mercantile Exchange. It’s the lowest close since Aug. 26. The more-active January contract dropped 23 cents to $41.72.

Brent for January settlement rose 4 cents to end the session at $44.18 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude closed at a $2.46 premium to January WTI.

U.S. crude stockpiles climbed to 487.3 million barrels in the week ended Nov. 13, the EIA said Wednesday. Stockpiles at Cushing, Oklahoma, the delivery point for WTI futures and the biggest U.S. oil-storage hub, rose by 1.5 million barrels. Refinery utilization rates rose by 0.8 percentage point for a fifth weekly gain to 90.3 percent of total capacity.

"Mild winter weather over the coming months could see weak heating demand in the U.S. and Europe,” Jeff Currie, an analyst at Goldman Sachs in New York, said in a report. With storage increasingly full, that may push oil prices down to cash costs, which the bank estimates at about $20 a barrel, he said.

Confident Minister

OPEC is confident the market will stabilize itself, Suhail Al Mazrouei, energy minister of the United Arab Emirates, said in Dubai. OPEC should be seen as a steady supplier, rather than a swing producer, and that would lead to more stability in oil markets, Mazrouei said. The 12-member group has pumped above its 30 million-barrel-a-day target the past 17 months, according to data compiled by Bloomberg.

Gasoline was the only energy market to climb. The gasoline crack spread, a rough measure of the profit from processing a barrel of oil into gasoline, was up 8.8 percent at 2:49 p.m. Refiners were the strongest performers in the Standard & Poor’s 500 Energy Index. Valero Energy Corp., the second-biggest U.S. independent refiner, was up 0.9 percent, while Marathon Petroleum Corp.. rose 0.3 percent, the only gains in the index.

Surprising Strength

"I am surprised by the strength of gasoline given that I don’t see any refinery upset and inventories unexpectedly rose in yesterday’s report while demand fell," Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by phone.

Gasoline futures for December delivery increased 2.18 cents, or 1.7 percent, to close at $1.2879 a gallon. It settled at $1.2380 on Tuesday, the lowest close since February 2009.

Regular gasoline at U.S. pumps slipped to the lowest level since February. The average retail price fell 1.5 cent to $2.115 a gallon Wednesday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

— With assistance by Grant Smith

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