Oil Drops to Five-Week Low on Record U.S. Crude Inventories

May 01, 2014 3:25 pm ET

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May 1 (Bloomberg) -- West Texas Intermediate dropped to a five-week low and Brent declined after U.S. crude inventories advanced to a record and fuel stockpiles grew.

Futures slipped 0.3 percent in New York. Crude stockpiles gained 1.7 million barrels last week to 399.4 million, the most since the Energy Information Administration began reporting weekly data in 1982. China’s manufacturing grew less than economists estimated in April, a report today showed. WTI surged to a five-month high on March 3 on tension between Russia and Ukraine.

“It’s hard to argue for $100 WTI with oil supplies about as high as they’ve ever been,” said Michael Lynch, the president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Although there’s increasing tension in Eastern Europe, the oil market is moving on the supply-demand balance at the moment. WTI should soon be trading in the mid-$90s.”

WTI for June delivery fell 32 cents to $99.42 a barrel on the New York Mercantile Exchange. It was the lowest settlement since March 25. WTI slipped 1.8 percent in April, the biggest monthly decline since November. The volume of all futures traded was 5.2 percent above the 100-day average at 2:54 p.m.

Brent for June settlement declined 31 cents, or 0.3 percent, to end the session at $107.76 a barrel on the London- based ICE Futures Europe exchange. Volume was 7.7 percent lower than the 100-day average. The European benchmark crude closed at an $8.34 premium to WTI, up from $8.33 yesterday.

U.S. Supplies

U.S. crude inventories have climbed to the highest level since 1931, monthly government data going back to 1920 show. Reports before 1976 were based on Bureau of Mines figures, according to the EIA, the Energy Department’s statistical arm. Alaskan crude in transit was included from 1981.

Gasoline supplies increased by 1.56 million barrels to 211.6 million, while stockpiles of distillate fuel, a category that includes heating oil and diesel, expanded by 1.94 million to 114.4 million, according to the EIA. Both fuels posted the biggest inventory gains since January.

Refineries operated at 91 percent of capacity in the seven days ended April 25, unchanged from the prior week when operating rates climbed to the highest level this year. Units often restart after performing maintenance in late winter as attention shifts away to gasoline from heating oil.

“Yesterday’s report was quite bearish, especially for the products,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “We should see a surge in product output in coming weeks unless there’s a catastrophe.”

Chinese Economy

The Chinese Purchasing Managers’ Index was at 50.4, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing, less than the 50.5 median estimate in a Bloomberg survey. China is the biggest crude- consuming country after the U.S.

U.S. jobless claims rose by 14,000 to 344,000 in the week ended April 26, the highest level since Feb. 22, the Labor Department said today. The median forecast in a Bloomberg survey of economists predicted 320,000.

“It’s hard to be bullish with oil supplies near records,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Barring a disruption of supply or a major ratcheting up of tension in Ukraine, we could see a dramatic drop in oil prices. Crude, gasoline and diesel have probably peaked for a long time.”

Ukraine’s east is slipping out of the government’s grasp as separatists expand their takeovers of official buildings and the U.S. and its allies warn of additional sanctions if Russia doesn’t ease tensions. The U.S. and Europe accuse Russia of stoking the turmoil in Ukraine, which won International Monetary Fund approval for a $17 billion loan.

Russian Sanctions

Russian President Vladimir Putin has warned further penalties may trigger a response against foreign companies in Russia’s energy and other industries. The EU has been reluctant to impose broader sanctions because of the potential harm to its member states, which rely on Russia for about 35 percent of their crude oil needs and 30 percent of their natural gas, according to European Commission data.

WTI rebounded from the session’s low after failing to decisively break below technical support. WTI dropped below the 100-day moving average, at $99.29 today, for the first time since Feb. 7.

Implied volatility for at-the-money WTI options expiring in June was 16.7 percent, down from 17.8 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 461,801 contracts at 2:55 p.m. It totaled 575,133 contracts yesterday, 6.2 percent above the three-month average. Open interest was 1.65 million contracts.