Oil Declines as West Coast Supply Drop Offset by Gains Elsewhere

  • U.S. crude inventories decrease by 553,000 barrels: EIA
  • Stockpiles on West Coast slip to lowest since January 2015

Oil Retreats Below $50 on OPEC Output Deal Concerns

Oil fell to a three-week low after a government report showed an unexpected decline in U.S. crude supply was centered on the West Coast.

Nationwide crude stockpiles fell 553,000 barrels last week, according to the Energy Information Administration. Analysts surveyed by Bloomberg projected a gain and the American Petroleum Institute data showed an increase. Supplies along the West Coast decreased by 2.26 million barrels to 47.1 million, the lowest since January 2015. But the region is sometimes ignored by traders because its distribution system is isolated from the rest of the country.

"This is a sloppy market," said Adam Wise, who helps run a $7 billion oil and natural gas bond and private equity portfolio at John Hancock in Boston. "News and changes of sentiment can easily send it moving into the opposite direction. We have mixed signals from today’s data."

Oil has fluctuated near $50 a barrel amid uncertainty about whether the Organization of Petroleum Exporting Countries can implement the first output cuts in eight years and get producers outside the group to join in, notably Russia. An OPEC committee will meet this week to try to resolve differences over how much individual members should pump, with Iraq saying it should be exempt because of conflict with Islamic militants.

WTI for December delivery fell 78 cents, or 1.6 percent, to settle at $49.18 a barrel on the New York Mercantile Exchange. It’s the lowest close since Oct. 4. Total volume traded was 15 percent above the 100-day average at 2:39 p.m.

Brent for December settlement slipped 81 cents, or 1.6 percent, to $49.98 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since Sept. 30. The global benchmark ended the session at a 80-cent premium to WTI.

Ample Stockpiles

The nationwide gain left U.S. crude supplies at 468.2 million in the week ended Oct. 21, according to EIA data. Stockpiles remain at the highest seasonal level in more than 20 years. 

Investors discounted the decline on the West Coast, known as PADD 5, because the report showed builds along the East and Gulf Coasts.

"PADD 5 might as well be Mars," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. "There’s no way of getting West Coast barrels east of the Rocky Mountains. Take those out of the equation, and you are almost looking at a build of 2 million barrels."

Supplies at Cushing, Oklahoma, the delivery point for WTI futures and the nation’s biggest storage hub, dropped by 1.34 million barrels to 58.4 million, the lowest level this year.

Refinery inputs of crude and other feedstocks rose 0.7 percent to 15.8 million barrels a day, advancing from the lowest level since February. Refineries usually cut back on operations in September and October after the peak-demand driving season comes to an end and before consumption rebounds as temperatures fall.

Fuel Inventories

Stockpiles of distillate fuel, a category that includes diesel and heating oil, dropped 3.35 million barrels, the fifth straight decline. Gasoline supplies fell 1.96 million barrels to 226 million.

"The 2 million-barrel gasoline draw and the 3 million-barrel drop in distillate supplies are headline bullish," said Matt Sallee, who helps manage $15 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas. "The draws are a result of the low refinery utilization rate."

Oil-market news:

  • OPEC Secretary-General Mohammed Barkindo said the group is facing its toughest challenge as members debate oil-output cuts needed to balance the market. He will visit Iraq Wednesday and Kuwait and the United Arab Emirates in early November.
  • China’s crude stockpiles rose 2.5 percent to 30.91 million tons last month, the highest level since March, according to Bloomberg calculation.
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