WTI Crude Declines for Second Day After Home Sales Miss Forecast

Jan 27, 2014 3:39 pm ET

(For Bloomberg fair value curves, see CFVL <GO>.)

Jan. 27 (Bloomberg) -- West Texas Intermediate crude fell for a second day as purchases of new U.S. homes missed forecasts, raising concern that fuel demand may slow in the world’s leading consumer of oil.

Prices dropped the most in two weeks. Home sales decreased 7 percent to a 414,000 annualized pace in December, the Commerce Department reported, lower than any estimate of economists surveyed by Bloomberg. WTI also declined on speculation the Federal Reserve will decide to curb stimulus further at a meeting this week.

“The U.S. economy is not as strong as people thought and the perception of demand is weak,” said Gordy Elliott, a risk- management specialist at Intl FC Stone LLC in St. Louis Park, Minnesota. “There is anticipation that the Fed will lessen stimulus.”

WTI for March delivery slid 92 cents, or 1 percent, to end at $95.72 a barrel on the New York Mercantile Exchange, the biggest one-day decline since Jan. 13. Volume was 9.1 percent below the 100-day average. Prices climbed 2.4 percent last week.

Brent for March settlement declined $1.19, or 1.1 percent, to end at $106.69 a barrel on the ICE Futures Europe exchange. The volume of all contracts traded was 15 percent below the 100- day average. The spread between WTI and Brent widened to $10.97 a barrel from $11.24 in the previous session.

The December home sales number followed a 445,000 rate in November that was revised from 464,000, the Commerce Department reported. The median forecast of analysts surveyed by Bloomberg for last month’s home sales was 455,000.

Fed Cutback

The Fed said Dec. 18 that it’s paring monthly purchases to $75 billion a month from $85 billion. Policy makers will gather tomorrow and Jan. 29 to consider the next step in their strategy of gradually reducing the pace of the bond buying.

“The U.S. economy is stagnant and I am not terribly optimistic about it,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “There is some concern that without the Fed stimulus, stocks and oil will move lower.”

The Standard & Poor’s 500 Index fell as much as 1 percent to the lowest level of 2014 before rebounding to gain 0.1 percent at 2:55 p.m.

“Equities are keeping a headwind on oil,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago.

Total petroleum consumption in the U.S. averaged 18.8 million barrels a day in the four weeks ended Jan. 17, the Energy Information Administration reported last week. That’s the lowest level since Oct. 18.

Rising Inventories

The U.S. will use 18.9 million barrels a day of oil this year, according to an EIA estimate.

Inventories of crude oil rose for the first time in eight weeks to 351.2 million barrels in the week of Jan. 17, the Energy Department’s statistical arm said. Stockpiles at Cushing, Oklahoma, the delivery point for WTI, increased for a third week to 41.6 million.

Cushing supplies may fall with TransCanada Corp.’s start of the southern leg of the Keystone XL pipeline, which links the hub with the Gulf Coast. The line is initially transporting 288,000 barrels of light, sweet crude a day to Nederland, Texas, executives said on Jan. 22. Flows will rise over the course of the year toward its 700,000-barrel capacity.

“Cushing supplies may start falling, but inventories in the Gulf Coast may increase,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.

Hedge funds and large speculators increased bullish crude oil wagers by 781 futures and options combined in the week ended Jan. 21, or 0.3 percent, to 230,503. That’s the first increase in three weeks.

Implied volatility for at-the-money WTI options expiring in March was 20.1 percent, up from 18.4 percent Jan. 24, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 412,882 contracts at 2:33 p.m. It totaled 493,442 contracts on Jan. 24, 2.7 percent lower than the three-month average. Open interest was 1.59 million contracts, the lowest level in almost a year.

--Editors: Richard Stubbe, Dan Stets