Crude Falls on Fed Speculation as Fuel Supply Forecast to Rise

Dec 17, 2013 5:02 pm ET

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Dec. 17 (Bloomberg) -- West Texas Intermediate crude fell on concern that the Federal Reserve will curb stimulus and as analysts forecast fuel supplies rose amid weak demand.

Prices dropped 0.3 percent. The Fed will announce a decision to maintain or reduce its $85 billion monthly bond- buying program at the end of a two-day meeting of policy makers that started today. Gasoline inventories rose last week to the highest level since August, according to a Bloomberg survey before an Energy Information Administration report tomorrow. Crude stockpiles declined in the survey.

“The market is concerned that the Fed is closer to tapering,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We have anemic fuel demand levels and more than ample supplies. That doesn’t make a bull market.”

WTI for January delivery slid 26 cents to settle at $97.22 a barrel on the New York Mercantile Exchange. The volume of all futures was 29 percent below the 100-day average at 3:27 p.m. Prices have closed between $92 and $99 since Oct. 21. They are up 5.9 percent this year.

Prices were little changed after the American Petroleum Institute reported crude inventories decreased 2.5 million barrels last week. WTI fell 28 cents, or 0.3 percent, to $97.20 a barrel in electronic trading at 4:37 p.m. It was $97.13 before the report was released at 4:30 p.m.

Brent for February settlement fell 97 cents, or 0.9 percent, to end the session at $108.44 a barrel on the London- based ICE Futures Europe exchange. The January contract expired at $110.47 yesterday. Trading was 36 percent below the 100-day average.

Fed Meeting

The European benchmark crude was at a premium of $10.97 a barrel, based on February contracts. The front-month spread closed at $13.12 yesterday, using January contracts, the widest level since Dec. 6.

Fed officials are monitoring the labor market as they debate when to pull back the asset purchases, known as quantitative easing. Policy makers have said they may taper “in coming months” if the economy improves as expected.

About 34 percent of economists surveyed by Bloomberg on Dec. 6 predicted that the Fed will start to reduce its monthly bond buying when it concludes the policy meeting. That compared with 17 percent in a survey from November. About 26 percent forecast an easing in January and 40 percent said March.

The Standard & Poor’s 500 Index slid 0.3 percent.

Petroleum Demand

“Crude again is moving with the equities,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “No one is jumping in before tomorrow’s EIA report and the Fed announcement.”

U.S. gasoline stockpiles rose 1.5 million barrels to 220.6 million last week, the Bloomberg survey showed. Supplies of distillate fuel, a category that includes diesel and heating oil, were probably unchanged at 118.1 million last week

Total petroleum consumption dropped 7.1 percent Dec. 6 to 18.6 million barrels a day, the EIA, the Energy Department’s statistical arm, said last week. Gasoline demand decreased for a fifth week to 8.35 million, the least since May.

“Demand is slipping again,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston.

Crude supplies slid by 3 million barrels last week to 372.2 million barrels, the Bloomberg survey showed. That would be the lowest level since Oct. 4. Stockpiles fell 16.2 million barrels in the prior two weeks as refineries ramped up their operations and energy companies pared inventories to reduce year-end tax burdens.

Tax Burdens

Companies in Gulf Coast states typically delay imports and minimize supplies at the end of the year to reduce local taxes.

“We are looking for a big withdrawal,” Baruch said. “A lot of it has to do with taxes.”

Refineries increased their operating rate to 92.7 percent of capacity from 92.6 percent the prior week, the survey showed. That would be a five-month high.

The industry-funded API collects information on a voluntary basis from operators of refineries, terminals and pipelines. The government requires that data be filed with the EIA.

“The Fed is on people’s minds,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “They will probably end up doing nothing and releasing a sanguine statement.”

Implied volatility for at-the-money WTI options expiring in February was 15.9 percent, up from 15.8 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 369,196 contracts at 4:37 p.m. It totaled 430,396 contracts yesterday, 25 percent below the three-month average. Open interest was 1.64 million contracts.

--With assistance from Mark Shenk in New York and Lorraine Woellert in Washington. Editors: Margot Habiby, Richard Stubbe