(For Bloomberg fair value curves, see CFVL <GO>.)
Oct. 31 (Bloomberg) -- West Texas Intermediate crude dropped to the lowest level in four months as U.S. stockpiles increased and the dollar strengthened against the euro.
Prices fell for a third day. Inventories rose to 383.9 million last week, the highest level since June, the Energy Information Administration said yesterday. The euro declined the most in six months versus the dollar as inflation in the euro region unexpectedly dropped. WTI’s discount to Brent shrank from the widest in seven months as Libya boosted output.
“The U.S. is swimming in oil and it looks like we are firmly below $100,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “If there’s weak demand data over the next few weeks, we could soon be testing $90.”
WTI for December delivery slid 39 cents, or 0.4 percent, to $96.38 a barrel on the New York Mercantile Exchange, the lowest settlement since June 26. The volume of all futures traded was 4.9 percent below the 100-day average at 3:23 p.m. Prices retreated 5.8 percent in October.
Brent for December settlement dropped $1.02, or 0.9 percent, to $108.84 a barrel on the London-based ICE Futures Europe exchange. Volume was 4.1 percent above the 100-day average. Brent gained 0.4 percent this month.
The European benchmark’s premium to WTI was $12.46, up from $13.09 yesterday, the most since April. WTI weakened $6.42 against Brent in October, the most in at least 10 years.
Nationwide crude supplies jumped 7.9 percent in the six weeks ended Oct. 25, according to the EIA, the Energy Department’s statistical arm. The U.S. will account for about 21 percent of global oil demand this year, almost double the estimate for China, the second-largest consumer, according to forecasts from the International Energy Agency in Paris.
“We are having continued reaction to the build in supplies,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “After the big inventory gain, it’s just hard to find anything bullish. The dollar being stronger is definitely putting some pressure on WTI.”
Crude stockpiles at Cushing, Oklahoma, where WTI is delivered, climbed 2.18 million barrels to 35.5 million last week, a two-month high, the EIA said. The refinery utilization rate was 87.3 percent, compared with as much as 92.8 percent in July.
“You are seeing this continuing trend of large builds in the U.S., which is depressing WTI prices,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors.
The European currency fell as much as 1.1 percent to $1.3584 as euro-area inflation cooled to the slowest in almost four years in October, fueling speculation the European Central Bank will cut interest rates to boost the recovery. A stronger dollar and weaker euro reduce oil’s investment appeal.
“Oil is moving with the dollar,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago.
WTI’s discount to Brent narrowed after widening $4.01 in the first three days of this week as supplies in Libya, holder of Africa’s largest reserves, were cut by half amid protests.
“I don’t expect it to widen any further,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York, who forecast WTI will average $95 this quarter. “It should be self-correcting.”
Libya, North Africa’s largest oil producer, is pumping 350,000 to 400,000 barrels a day, Ibrahim Al Awami, the oil ministry’s head of measurement and inspection, said by phone today.
Output fell as low as 250,000 to 300,000 barrels a day, Mohamed El Harari, spokesman for the state-run National Oil Corp., said Oct. 28. The Sharara field in western Libya may be able to restart within 10 days, said Salah A. Ben Ali, manager of international cooperation office at the oil and gas ministry.
The country’s output climbed 150,000 barrels a day to 450,000 in October, a Bloomberg survey showed. Production last month was at the lowest level since September 2011.
Crude output by the 12-member Organization of Petroleum Exporting Countries increased 38,000 barrels to an average 30.621 million barrels a day this month from a revised 30.583 million in September, the survey of oil companies, producers and analysts showed.
Implied volatility for at-the-money WTI options expiring in December was 19.4 percent, up from 19.9 percent yesterday, according to data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 518,077 contracts as of 3:22 p.m. It totaled 637,985 contracts yesterday, 9.8 percent above the three-month average. Open interest was 1.76 million contracts, the least since June 5.
--With assistance from Grant Smith in London. Editors: Margot Habiby, Richard Stubbe