Oil Closes Below $31 After U.S. Crude Supply Surge Damped Gainsby
Crude stockpiles climbed 2.15 million barrels last week: EIA
Imports increased 11 percent to 7.92 million barrels a day
Oil closed below $31 a barrel, almost erasing the session’s gains, after a report showed U.S. crude inventories advanced to an 86-year high.
Crude stockpiles rose 2.15 million barrels to 504.1 million last week, pushed by the biggest gain in imports since April, according to the Energy Information Administration. Prices climbed earlier as Iran cautiously supported a proposal by Saudi Arabia and Russia to freeze production at near-record levels.
"We have ample crude stockpiles and are still accumulating more," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "The main cause of the inventory gain was the rebound in imports from the low level of the prior week."
Oil is down about 17 percent this year after the Organization of Petroleum Exporting Countries abandoned output targets in early December and U.S. crude inventories swelled. Iranian Oil Minister Bijan Namdar Zanganeh didn’t say if the country, the second-biggest OPEC producer before sanctions were intensified in 2012, would deviate from plans to boost exports after the lifting of restrictions last month.
West Texas Intermediate for March delivery rose 11 cents to close at $30.77 a barrel on the New York Mercantile Exchange. It was the highest settlement since Feb. 5. The contract advanced as much as 4.3 percent to $31.98 earlier. Total volume traded was 12 percent above the 100-day average at 2:51 p.m.
It was the smallest move for WTI since Jan. 13. The CBOE Crude Oil Volatility Index, which measures expectations of price swings, fell a third day after touching the highest level in seven years Tuesday.
Brent for April settlement decreased 22 cents, or 0.6 percent, to $34.28 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a $1.35 premium to WTI for April delivery.
U.S. crude imports climbed 11 percent to 7.92 million barrels. Supplies at Cushing, Oklahoma, the biggest U.S. oil-storage hub, rose to a record 64.7 million barrels. The site, which is the delivery point for WTI, has a working capacity of 73 million, according to the EIA.
Production fell by 51,000 barrels a day to 9.14 million, the lowest since October. Rigs targeting oil in the nation’s fields fell to 439 last week, the lowest since January 2010, Baker Hughes Inc. said on its website Feb. 12.
"The key here is that we are starting to see a fall in production and it’s going to continue week-to-week," said Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors LLC who helps manage $13.5 billion. "The theme of the earning calls has been the cutting of production forecasts."
Implementation of the freeze remains unclear because Saudi Arabia and Russia said their commitment depends on other nations participating. Iran’s cooperation is crucial to the success of the plan to halt the fall in prices, according to Daniel Yergin, vice chairman of IHS Inc. The pact will have “little impact on the oil market as proposed, while there remains high uncertainty that it even materializes,” said Goldman Sachs Group Inc.
Iran is seeking to boost output by 1 million barrels a day and regain market share. The nation should increase production by 500,000 barrels a day by March 20, the end of the Iranian calendar year, Shana reported on Wednesday, citing Roknoddin Javadi, managing director of National Iranian Oil Co.
"There’s a will to believe on the part of the bulls that some sort of OPEC production cut is coming down the pike," Evans said. "The emphasis is that the announcement of a freeze is the start of a process. I think any agreement would come at OPEC’s June 2 meeting, and I give it no more than a 50-50 chance."
Gasoline supplies climbed 3.04 million barrels to 258.7 million, the highest in weekly records going back to 1990. It was the 14th straight gain, the longest stretch since 2008. Inventories of distillate fuel, a category that includes diesel and heating oil, rose 1.4 million barrels to 162.4 million.
March gasoline futures fell 3.1 percent to close at 97.24 cents a gallon. Diesel dropped 0.8 percent to $1.0792.