Oil Dips as Industry Data Shows First Crude Build Since November

(Bloomberg) -- Crude slid lower after an industry report was said to show the first crude build in the U.S. since November.

Futures in New York declined further after taking its biggest tumble since early December during Tuesday’s session. The American Petroleum Institute was said to have reported crude stockpiles increased 3.23 million barrels last week. Inventories probably rose by 900,000 barrels last week, according to the median estimate of analysts surveyed by Bloomberg. Weakness in the stock market also led to crude’s decline.

A build in crude is “fairly realistic,” James Williams, president of London, Arkansas-based energy researcher WTRG Economics, said by telephone. “Either this week or next week, we are going to see builds,” as refiners enter seasonal maintenance.

The API report was also said to show that gasoline stockpiles climbed by 2.69 million barrels last week, which would make twelve consecutive weeks of increases if EIA data confirms it. 

Oil Dips as Industry Data Shows First Crude Build Since November

As the Organization of Petroleum Exporting Countries works to reduce output, concern that U.S. crude production will hit new records remains on investors’ minds. Yet, OPEC and Russia will let oil prices climb as high as the market can bear, according to Gary Ross, global head of oil analytics at S&P Global Platts.

While crude stockpiles have dropped for 10 straight weeks, gasoline supplies have been on the rise since early November, and analysts estimate they rose by another 2 million barrels last week. Inventory figures will be released by the Energy Information Administration on Wednesday.

At the same time, U.S. crude output could top 10 million barrels a day at any time. Production reached 9.88 million barrels a day last week, the highest in weekly government data going back to 1983.

See also: Oil-options traders shrug off price drop to bet on $80 WTI

West Texas Intermediate crude for March delivery traded at $64.07 at 4:38 p.m. after settling at $64.50 a barrel on the New York Mercantile Exchange. Total volume traded was about 7 percent above the 100-day average.

Brent for March settlement slid 44 cents to end the session at $69.02 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.52 to WTI, after reaching the smallest premium since August on Monday.

As the spread tightens between WTI and Brent, crude exports from the U.S. may become less attractive, leading to storage buildups.

“Exports are being hurt a bit by the reduction in the Brent-WTI spread, which should also help inventories replenish. This is the slack demand period,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. It’s also “registering with folks that crude oil output is just soaring.”

The S&P 500 Energy Index fell as much as 2.1 percent, with Chesapeake Energy Corp. falling 6.4 percent. Noble Energy Inc., Newfield Exploration Co. and Apache Corp. all tumbled more than 4 percent.

Front-month gasoline futures briefly jumped as much as 0.9 percent before settling 2 percent lower at $1.8954 a gallon, the biggest drop since mid-December. The quick rise was seen as potentially a “fat finger” trade. The February contract expires Wednesday.

The Dow Jones Industrial Average tumbled 362 points, helping to send U.S. stocks to the biggest two-day decline since May.

“The crude market is looking at the weakness in stock market. That’s making the oil traders a little nervous,” Phil Flynn, senior market analyst at Price Futures Group Inc. in Chicago, said by telephone. At the same time, “there is an expectation that we will see the first increase in supply in a long time.”

Other news:

  • Front-month diesel futures fell 1.6 percent to close at $2.0717 a gallon, the lowest level in more than week.
  • America’s most prolific oil field is about to get a lot busier. Exxon Mobil Corp. is planning to triple production from the Permian Basin to the equivalent of 600,000 barrels of oil a day by 2025, the company said in a statement Tuesday.
  • A sizable chunk of Mexico’s deep-water crude reserves will be auctioned this week at cut-rate prices as President Enrique Pena Nieto’s drive to overturn years of dwindling oil production faces its most vital moment yet.

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