Oil Settles Below $44 in New York Before U.S. Stockpile Report

Updated on
  • Crude falls to lowest level in a week after recent rally
  • U.S. crude stocks rose by 750,000 barrels last week: survey

Beware of the Weakness Behind Oil's Price Rally

Oil tumbled to below $44 a barrel ahead of U.S. government data forecast to show nationwide crude supplies rose last week.

Futures fell 2.5 percent in New York, declining for a third day after reaching a five-month high. Inventories are forecast to have increased by 750,000 barrels last week, according to the median estimate in a Bloomberg survey before an Energy Information Administration report Wednesday. Cushing crude supplies probably rose by 1.3 million barrels, according to a Bloomberg proprietary model, even as some analysts expect a drop.

“The price of crude got ahead of itself,” Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital LLC in Miami, said by telephone. “The supply issue is definitely there. That’s not something that is going to change. Now people are starting to get worried about demand.”

West Texas Intermediate for June delivery dropped $1.13 to settle at $43.65 a barrel on the New York Mercantile Exchange after falling to as low as $43.32 a barrel. Total volume traded Tuesday was about 3 percent above the 100-day average.

Brent for July settlement declined 86 cents to end the session at $44.97 a barrel on the London-based ICE Futures Europe exchange. The global benchmark was at a premium of 56 cents to WTI for July.

There is “concern that the bull market has run its course for the time being,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone. “People are waiting for the market to get back into equilibrium and we are quite a ways from that, so I’m not surprised we’re seeing a little bit of a pullback.”

Cushing Stockpiles

Prices remain about 60 percent below their peak in mid-2014 as the global oversupply persists. The Organization of Petroleum Exporting Countries raised production last month, with Iraq and Iran leading the gains, according to data compiled by Bloomberg. Iran’s representative to OPEC, Mehdi Asali, said commodity prices including oil won’t go up anytime soon and the surplus of crude and gas could last at least five years, according to the country’s Shana news service.

Supplies at Cushing, Oklahoma, the delivery point for WTI and the nation’s biggest oil-storage hub, are expected to have increased by 1.3 million barrels in the week ended April 29, according to a Bloomberg proprietary model. Analysts surveyed by Bloomberg, however, are expecting a decline at Cushing, with four forecasting an average 250,000-barrel drop. Stockpiles at Cushing rose in the week ended April 22 after falling the two previous weeks.

“Everybody thought Cushing would be draining like crazy with the drops in production,” Michael Hiley, head of OTC energy trading at New York-based LPS Partners, said by telephone. “Last week’s number surprised some and it will be very interesting to see if we get a similar number this week.”

“I can see WTI down to $40 if there are no new fundamentals,” Hiley said.

Additional oil-market news:

  • Saudi Aramco may lessen the discount by 65 cents a barrel for June sales of Arab Light to Asia.
  • OPEC fails to finalize its long-term strategy plan at a meeting, according to two delegates.
  • Crude is poised for backwardation by July, First Energy says at a conference in Calgary.
  • BP Plc doesn’t see “mega-scale” M&A as part of its future, but may consider bolt-on acquisitions as it grows output.
  • Brazil is more likely to reform its struggling oil industry to attract investments if there is a change in government, according to some of the country’s top oil executives.
  • Motiva’s Port Arthur, Texas refinery, the largest in the U.S., is said to restart its FCC within two days after an unplanned outage, according to a person familiar with operations.