Oil Falls to Three-Month Low

  • U.S. crude stockpiles rise 1.67 million barrels: EIA data
  • Gasoline inventories climb as distillate supplies decline

Oil Falls for a Fifth Session

Oil dropped to a three-month low in New York after government data showed that U.S. crude stockpiles unexpectedly climbed last week, halting the longest streak of declines on record.

Futures fell 2.3 percent in New York after crude inventories rose 1.67 million barrels, according to an Energy Information Administration report. Analysts surveyed by Bloomberg had forecast a 2 million-barrel decline. Refineries reduced operating rates, which had been at the highest level of the year. U.S. refiners usually don’t begin to curb processing until August as the summer driving season nears its end.

"You should expect further inventory gains as refinery runs decline," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $133 billion of assets. "We all thought the market would rebalance more quickly. It won’t be until 2017 before the crude oversupply is gone."

Oil has slipped 18 percent since early June after almost doubling from a 12-year low in February. While the global oversupply has eased amid supply disruptions from Nigeria to Canada, high inventories of both crude and refined fuels coupled with signs of faltering demand growth have stifled the recovery.

Dollar Strength

West Texas Intermediate oil for September delivery dropped $1 to settle at $41.92 a barrel on the New York Mercantile Exchange. It’s the lowest close since April 19. Total volume traded was down 15 percent from the 100-day average at 2:46 p.m.

Brent for September settlement fell $1.40, or 3.1 percent, to $43.47 a barrel on the London-based ICE Futures Europe exchange, the lowest close since April 18. The global benchmark ended the session at a $1.55 premium to WTI.

Crude extended losses and the dollar briefly spiked after the Federal Reserve struck a more hawkish tone while leaving interest rates unchanged. The Bloomberg Dollar Spot Index, which tracks the currency against major peers, increased as much as 0.5 percent during the day’s trading. A stronger greenback reduces the appeal of dollar-denominated raw materials to investors.

"The strength of the dollar is a huge headwind for oil prices," said Chris Kettenmann, chief energy strategist at Macro Risk Advisors in New York.

Rising Stockpiles

U.S. crude inventories climbed to 521.1 million barrels in the week ended July 22, leaving supplies at the highest seasonal level in decades, EIA data show. Stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, increased by 1.11 million barrels to 65.2 million.

Crude production in the U.S. rose by 21,000 barrels a day to 8.52 million last week, marking the longest series of gains since January. Nationwide output would be lower if not for a 33,000-barrel-a-day increase in Alaska. U.S. oil explorers have boosted the number of active rigs by 55 since the start of June to 371, with 14 added last week, Baker Hughes Inc. said July 22.

Refineries trimmed operations by 0.8 percentage point to 92.4 percent of capacity.  Refiners typically bolster their utilization rates in June and July to meet peak gasoline demand before ratcheting back in August. Over the past five years, refiners’ thirst for oil has dropped an average of 1.2 million barrels a day from July to October.

"Refiners are already cutting back runs," Kettenmann said. "Seasonal demand is probably easing."

Fuel Supplies

Gasoline inventories rose 452,000 barrels to 241.5 million, the highest since April, the report showed. Stockpiles of distillate fuel, a category that includes diesel and heating oil, slipped 780,000 barrels to 152 million.

August gasoline futures slipped 1.8 percent to $1.3214 a gallon, the lowest close since March 3. Diesel for August delivery dropped 2.3 percent to $1.295, the lowest settlement since May 9.

"The crude number was a big surprise," said Craig Bethune, a fund manager at Manulife Asset Management Ltd. in Toronto who focuses on energy and natural resources investments. "This was a very negative report. The only positive headline was the distillate number."

Oil-market news:

  • Iraq is negotiating with Exxon Mobil Corp. and Petrochina Co. to develop two oil fields in the south of the country as it seeks to maintain overall production at about 4.8 million barrels a day for the rest of 2016, Deputy Oil Minister Fayyad Al-Nima said.
  • Brazil’s interim government is studying the benefits of scrapping nationalistic oil legislation that was championed by now suspended President Dilma Rousseff and her leftist Workers’ Party.
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