Oil Tumbles After U.S. Crude Stockpiles Climb Most on Record

  • Crude inventories rose 14.4 million barrels last week: EIA
  • Imports increased to highest level since September 2012

Is OPEC's Credibility Crumbling?

Oil tumbled as a record increase in U.S. crude stockpiles heightens the pressure on OPEC to reduce production.

Crude inventories rose 14.4 million barrels last week, the biggest gain in data going back to 1982, according to the Energy Information Administration. A 2 million barrel increase was forecast by analysts surveyed by Bloomberg. Imports surged 28 percent to the highest in four years. Prices were down before the report’s release on record OPEC output last month, which is complicating the group’s effort to stabilize prices.

Oil is continuing its retreat triggered by the failure last week of the Organization of Petroleum Exporting Countries to agree on the member quotas required to implement an output deal reached in Algiers in September. While Goldman Sachs Group Inc. sees little chance of an agreement at an official meeting of the group on Nov. 30, Bank of America Merrill Lynch and OPEC’s head remain confident of a deal.

"Market conditions have deteriorated and we’re back at $45," said Chris Kettenmann, chief energy strategist at Macro Risk Advisors LLC in New York. "This report increases the pressure on core OPEC members to come to an agreement on cuts by the time they meet on Nov. 30."

West Texas Intermediate for December delivery dropped $1.33, or 2.9 percent, to settle at $45.34 a barrel on the New York Mercantile Exchange. It’s the lowest close since Sept. 27. Total volume traded was about 15 percent above the 100-day average at 2:44 p.m.

Brent for January settlement slipped $1.28, or 2.7 percent, to $46.86 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since Sept. 27. The global benchmark crude ended the session at a 93 cent premium to January WTI.

Volatility Advances

Oil market volatility, as measured by the CBOE Crude Oil Volatility Index, has climbed over the past week as futures moved lower. The index rose as high as 45.51 Wednesday, the highest since Sept. 27.

"We’re right back at the price we saw before the OPEC meeting in September," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $133 billion of assets. "There’s been a lot of bullish speculation in the market and the news hasn’t supported it. We’re now going to test the bottom end of the recent range."

The gain left U.S. crude supplies at 482.6 million in the week ended Oct. 28, according to EIA data. Stockpiles are at the highest seasonal level in more than 20 years.

Surging Imports

Crude imports rose 28 percent to 9 million barrels a day last week, the highest since September 2012. Production increased 0.2 percent to 8.5 million barrels a day. Rigs targeting crude in the U.S. slipped by 2 to 441 last week, the first decline since June, according to Baker Hughes Inc.

"We could fall further but I don’t think it goes below $40," said Joe Bozoyan, an equity portfolio manager who focuses on energy at John Hancock in Boston. "If prices go lower we will see a reversal in the rig count, which would hurt U.S. production."

OPEC pumped a record 34.02 million barrels a day in October, up 170,000 barrels from September, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data. 

The OPEC gain was lead by Libya, Nigeria and Iran -- granted special status after OPEC members reached their agreement in Algiers -- pumped an additional 400,000 barrels a day in October, the survey showed. Iraq, also demanding an exemption, added 50,000 barrels a day.

The S&P Oil & Gas Exploration and Production Select Industry index dropped as much as 3.6 percent to the lowest level in three months.

Oil-market news:

  • Colonial Pipeline Co. said it may resume service on its gasoline line at noon local time Saturday after an explosion and fire in Alabama sent futures surging.
  • Pioneer Natural Resources Co., the Texas shale driller targeting double-digit annual production gains for the rest of the decade, missed profit expectations as hedging losses aggravated the impact of low energy prices.
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