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Oil Dips as Industry Report Shows Swelling Spare U.S. Oil Supply

Updated on
  • Nationwide crude stocks rose 933,000 barrels last week: API
  • Gasoline stockpiles increased for a fourth straight week
BofA’s Blanch Sees Oil Demand Staying Strong Through 2020

Crude slipped after an industry report was said to show an increase in U.S. crude stockpiles.

Futures in New York fell from the settlement Tuesday after the American Petroleum Institute was said to have reported U.S. crude stockpiles expanded by 933,000 barrels last week. If confirmed in a government tally scheduled to be released on Wednesday, inventories will have racked up increases in four of the past five weeks.

American crude explorers are driving “explosive growth” that will continue into next year, International Energy Agency Executive Director Fatih Birol said earlier in the day. Prices also were under pressure because of the strengthening dollar that diminished the appeal of the commodity as a store of value.

As the Organization of Petroleum Exporting Countries works to trim output, producers are committed to bringing supply and demand into balance, United Arab Emirates Energy Minister Suhail Al Mazrouei said Tuesday in Abu Dhabi. Strong U.S. shale growth could delay those efforts, Birol said the same day in a Bloomberg Television interview.

“The comments from the IEA head about the pace of U.S. shale growth might have taken the wind out of the bull’s sails,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. Heftier stockpiles and a slide in refiner demand “should end up being a bearish factor for the market as well.”

American explorers have expanded the fleet of rigs searching for domestic crude to the highest since 2015 as the OPEC-led supply curbs resurrected oil markets.

“You’ve had the rig count grind higher,” Rob Haworth, who helps oversee $151 billion in assets at U.S. Bank Wealth Management in Seattle, said by telephone. “It seems like shale producers are really getting a lot of efficiency for their capital investment and seem to be making money at these levels.”

West Texas Intermediate crude for April delivery traded at $62.81 a barrel at 4:39 p.m. after settling at $63.01 on the New York Mercantile Exchange. Total volume traded was about 21 percent below the 100-day average.

U.S. Supply Picture

Brent for April settlement, which expires Wednesday, declined 87 cents to end the session at $66.63 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $3.62 premium to WTI.

As expiration nears, the front-month Brent futures’ premium over its second-month contract is at 11 cents, the smallest since November.

Strength in the dollar also weighed on crude prices as a rising greenback diminished the appeal of commodities priced in the U.S. currency. The Bloomberg Dollar Spot Index, a gauge of the currency against 10 major peers, rose as much as 0.7 percent as Federal Reserve Chairman Jerome Powell said inflation could be gaining speed.

WTI calendar strip bets made on flatter curve in second half of 2018

A Bloomberg survey showed U.S. crude inventories probably increased by 3 million barrels last week. Conversely, stockpiles at the Cushing, Oklahoma, pipeline hub probably dropped by 1.2 million barrels, according to a forecast compiled by Bloomberg. That would make for a 10th straight week of declines.

The API report also reported that gasoline supplies rose by 1.91 million barrels, a fourth straight increase if EIA data confirms it. Meanwhile, Cushing stockpiles fell by 1.28 million barrels.

Other oil-market news:

  • Gasoline futures fell 1.3 percent to settle at $1.8034 a gallon.
  • The head of OPEC plans to dine with U.S. shale company executives on Monday in Houston, the second consecutive year that the secretary general will have met with some of the cartel’s top rivals.
  • Oilfield-service costs will rise by double digits this year, according to Carrizo Oil & Gas Inc., the latest U.S. shale explorer to warn about rising expenses.
  • Koch Supply & Trading is cutting at least 10 positions in petrochemicals, fuel oil and gasoline trading mostly in Singapore, Geneva and Houston, according to people familiar with the matter.

— With assistance by Sharon Cho, and Angelina Rascouet

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