Brent Crude Oil Falls Below $30 for First Time Since April 2004

  • Gasoline drops to lowest since 2009, Diesel at 2004 levels
  • U.S. gasoline supplies sees biggest 2-week gain on record: EIA

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Brent oil dropped below $30 a barrel for the first time since April 2004 on speculation Iranian shipments will soon climb.

Crude fell 1.8 percent in London while West Texas Intermediate oil was little changed in New York. A nuclear deal between Iran and world powers may be implemented by the time markets open on Monday, triggering sanctions relief for the Islamic Republic that paves the way for a surge in oil exports. Fuel prices tumbled after Energy Information Administration data showed U.S. gasoline supplies capped the biggest two-week gain on record.

"The spread between Brent and WTI is coming in because Iranian sanctions could be lifted as early as Monday," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. "Additional Iranian barrels will have a much bigger impact on seaborne Brent than on WTI."

Futures in London have lost 19 percent this year as volatility in Chinese markets fueled a rout in global equities and on speculation that growing Iranian shipments will add to the global glut.

Brent oil slipped 55 cents, or 1.8 percent, to $30.31 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since April 2004. The contract touched $29.96. Total volume traded was 89 percent above the 100-day average at 3:18 p.m.

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West Texas Intermediate crude for February delivery rose 4 cents to settle at $30.48 a barrel on the New York Mercantile Exchange. The contract sank to $29.93 on Tuesday, the lowest since 2003. The U.S. benchmark crude closed at a 17-cent premium to Brent, up from 42 cent discount at Tuesday’s close.

Iranian Plans

Iran will add 500,000 barrels a day of exports within a week of the removal of sanctions and 1 million within six months, Roknoddin Javadi, head of National Iranian Oil Co. said last month, according to the Shana news agency.

"Picking a bottom right now is a lot like catching a falling knife," said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston. "We need to see big draws in both inventories and production turn over before there is a sustained rebound."

U.S. crude inventories rose 234,000 barrels to 482.6 million last week, the EIA said. Crude output rose by 8,000 barrels a day to 9.23 million, the highest since August. 

Crude supplies in Cushing, Oklahoma, the delivery point for WTI, climbed rose 97,000 barrels to an all-time high of 64 million. The site has a working capacity of 73 million barrels, according to the EIA. 

Ugly Data

"The U.S. is still the biggest oil consumer and has the best data, and this data is ugly," said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. "I’m from Houston so I would like to see a healthier market, but I’m also a pragmatist and there’s nothing positive here."

Gasoline stockpiles climbed 8.4 million barrels to 240 million barrels, the highest since February. Inventories rose 19 million barrels since Dec. 25, the biggest two-week gain since weekly data began in 1990. Demand dropped 2 percent to 8.81 million barrels a day averaged over the last four weeks.

The gasoline crack spread, a rough measure of the profit from processing a barrel of oil into gasoline, was down 8.4 percent at 3:16 p.m.

The Bloomberg North American Refining and Valuation Index was down 8.7 percent to the lowest since February. Valero Energy Corp., the second-biggest U.S. independent refiner, dropped more than 8 percent.

Gasoline Crack

"This is clear evidence that demand for gasoline is declining," said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. "The gasoline cracks should deteriorate as a result of this and that’s going to hurt the entire complex. Strong gasoline cracks were one of the few supportive items in the market."

February gasoline futures dropped 3 percent, to $1.0528 a gallon, the lowest close since February 2009. Diesel for February delivery fell 2.1 percent to settle at 96.94 cents, the least since June 2004.

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