WTI Crude Heads for Record-Long Slump on Supplies; Brent Steady

Jul 10, 2014 7:51 am ET

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July 10 (Bloomberg) -- West Texas Intermediate crude headed for a record-long slump as government data showed an expansion in supplies where the oil is stored, and demand for gasoline weakened. Brent, Europe’s benchmark, was little changed in London.

Futures declined as much as 0.7 percent in New York. A lower closing price would be the 10th in a row, marking the longest retreat since the contracts began trading in 1983, New York Mercantile Exchange data show. Crude stockpiles rose the most since January at Cushing, Oklahoma. Gasoline inventories increased and consumption fell, according to Energy Information Administration figures. OPEC predicted that demand for its crude will decline in 2015 to the lowest in six years.

“Yesterday’s weekly oil inventories showed lower-than- expected gasoline demand,” Michael Poulsen, an analyst at Global Risk Management Ltd. in Middelfart, Denmark, said in a report. It’s “a surprise since the summer driving season is presently peaking.”

WTI for August delivery dropped as much as 74 cents to $101.55 a barrel in electronic trading on the New York Mercantile Exchange and was at $101.96 at 12:49 p.m. London time. The contract slid $1.11 to $102.29 yesterday, the lowest close since May 16. The volume of all futures traded was about 20 percent above the 100-day average for the time of day.

Crude inventories at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, climbed by 447,000 barrels to 20.9 million. Supplies nationwide dropped by 2.4 million barrels to 382.6 million.

Cushing Reaction

“Inventories at Cushing increased unexpectedly and WTI is reacting to that,” said Amrita Sen, chief oil markets analyst at consultant Energy Aspects Ltd. “The stockpile increase came as a result of reduced flows out of Cushing on the Seaway pipeline following a two-day outage.”

Gasoline inventories rose by 579,000 barrels to 214.3 million barrels in the week ended July 4, according to the EIA. A Bloomberg survey of nine analysts had anticipated a 400,000 barrel decline.

Consumption of the road fuel shrank by 233,000 barrels a day to 8.94 million, the report shows. The peak U.S. driving season typically starts on Memorial Day, which was May 26 this year, and runs through Labor Day on Sept. 1.

Brent for August settlement was little changed at $108.20 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $6.23 to WTI on ICE. The spread widened for the first time in four days yesterday to close at $5.99.

OPEC Demand

The need for crude from the Organization of Petroleum Exporting Countries will slide to 29.4 million barrels a day next year even as growth in world oil consumption accelerates, the group said today in its first assessment of 2015. That’s 300,000 a day less than OPEC’s 12 members pumped in June.

It would be the third consecutive annual drop in demand for OPEC crude and the lowest since 2009. The U.S. will provide about two-thirds of next year’s global supply growth, OPEC said, amid a shale-oil surge that has made the U.S. the world’s biggest producer.

“Even if next year’s world economic growth turns out to be better than expected and crude oil demand outperforms expectations, OPEC will have sufficient supply to provide to the market,” the group’s Vienna-based secretariat said in the report.

Libya Pipeline

Libya, which has regained control of oil terminals seized by rebels, plans to increase shipments gradually to avoid disrupting the market, Samir Kamal, the nation’s governor to OPEC, said July 8. The country has become the smallest producer in OPEC because of unrest in the past year.

A pipeline from the Sharara field has restarted. That allows the deposit, which can produce 340,000 barrels a day of crude, to resume, according to state-run National Oil Corp. Libya pumped 300,000 barrels a day last month, data compiled by Bloomberg show.

“There is room for a further drop,” Thina Saltvedt, an analyst at Oslo-based Nordea Markets, said by e-mail. “The Libyan terminals reopening and a temporary lower political risk premium have softened the markets somewhat.”

--With assistance from Ben Sharples in Melbourne.