Oil Falls as U.S. Crude Supply Grows, Russia Optimistic on Deal

  • U.S. inventories climbed 5.27 million barrels last week: EIA
  • Refinery crude demand rises to highest since September

OPEC Expands Push to Secure Production Cut Deal

Crude fell after a government report showed U.S. supplies rose while Russia’s oil minister expressed optimism that OPEC would reach a deal.

Stockpiles climbed 5.27 million barrels last week, according to the Energy Information Administration. A 1.5 million barrel gain was forecast by analysts surveyed by Bloomberg.  Refiners used 16.1 million barrels a day of crude, up 309,000 barrels from a week earlier. Russia is ready to support an OPEC decision to stabilize the market, Energy Minister Alexander Novak said. OPEC ministers are meeting on Nov. 30 to discuss how to implement production cuts.

Oil retreated for much of the past three weeks amid skepticism about the Organization of Petroleum Exporting Countries’ ability to implement a production cut at the upcoming summit in Vienna. Officials from the group and Russia are meeting in Doha on Thursday for another round of talks without ministers from Iran and Iraq, the two countries that pose the biggest obstacle to an output accord.

"You would have expected to see more selling after such a big build in crude," said Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut. "There’s a feeling that OPEC will come to some sort of an agreement later this month, which makes selling risky."

West Texas Intermediate for December delivery slipped 24 cents to settle at $45.57 a barrel on the New York Mercantile Exchange. Prices rose 5.8 percent to $45.81 on Tuesday, the biggest gain since April 8. Total volume traded was about 36 percent above the 100-day average.

Brent for January settlement slipped 32 cents to $46.63 a barrel on the London-based ICE Futures Europe exchange. Prices rose 5.7 percent to $46.95 on Tuesday. The global benchmark closed at a 53-cent premium to January WTI.

Ample Inventories

The inventory gain left U.S. crude supplies at 490.3 million in the week ended Nov. 11, according to EIA data. Stockpiles are at the highest seasonal level in more than 30 years.

Refineries boosted operating rates by 2.1 percentage point to 89.2 percent of capacity, the biggest gain since February. Plants usually increase operations in November as they prepare to meet winter-fuel demand.

"There was a significant recovery in refinery demand," said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida. "The fact that there was a crude build while refinery runs were growing is very bearish for the market."

Gasoline supplies climbed 746,000 barrels to 221.7 million last week. Stockpiles of distillate fuel, a category that includes diesel and heating oil, rose 310,000 barrels to 148.9 million, the first increase in eight weeks. 

Purchasing Calls

Oil investors have traded a record number of bullish options contracts for WTI, a sign that they’re positioning for a potential OPEC deal. The total volume of calls giving investors the right to purchase the contract rose to the equivalent of 303 million barrels on Tuesday, preliminary CME Group Inc. data compiled by Bloomberg show. That far exceeded a prior record of 221 million, set five and a half years ago.

"You’re seeing some hedging ahead of the OPEC meeting," said Phil Flynn, senior market analyst at Price Futures Group in Chicago. "Remember we fell almost $10 in three weeks as doubts about OPEC grew. This is cheap protection in case they can get a deal, which could easily send prices $10 higher."

Oil-market news:

  • The Obama administration is set to block the sale of new oil and gas drilling rights in U.S. Arctic waters under a five-year blueprint, handing a victory to environmentalists.
  • U.S. oil output will grow more than previously thought this decade as shale drillers adapt to low prices, while other suppliers are hit harder by OPEC’s fight for market share, the International Energy Agency said.
    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE