(For Bloomberg fair value curves, see CFVL <GO>.)
Aug. 5 (Bloomberg) -- West Texas Intermediate dropped to a six-month low while Brent fell to the lowest level this year amid speculation that refineries will slow operations, reducing crude demand.
Refineries probably operated at 92.9 percent of capacity on Aug. 1, down 0.6 percentage point from the prior week, according to a Bloomberg survey before a government report tomorrow. U.S. refiners usually schedule maintenance for September and October when gasoline demand declines. Speculator bets that WTI will climb have decreased 22 percent from a record reached in June, government data showed last week.
“Refinery activity has already peaked for the year and should continue to fall,” said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. “There are just four weeks remaining to the peak-demand summer driving season, so there’s not a lot to support prices.”
WTI for September delivery dropped 91 cents, or 0.9 percent, to close at $97.38 a barrel on the New York Mercantile Exchange. It was the lowest settlement since Feb. 5. The volume of all futures traded was 8.1 percent above the 100-day average at 4:42 p.m.
Oil rebounded from the close after the American Petroleum Institute was said to report that U.S. crude supplies slipped 5.5 million barrels last week by Bain Energy. WTI traded at $97.57 a barrel at 4:42 p.m.
Brent for September settlement slipped 80 cents, or 0.8 percent, to $104.61 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since Nov. 7. Volumes were 18 percent higher than the 100-day average. The European crude closed at a $7.23 premium to WTI, versus $7.12 yesterday.
Hedge funds and other money managers trimmed their net-long position for the fifth time in six weeks in the week through July 29, U.S. Commodity Futures Trading Commission data released on Aug. 1 show.
“The loss of $10 in value in six weeks can’t be explained by weak fundamentals alone,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Much of it is just momentum trading by the speculators that sent prices to new highs not long ago. Until there’s a major event prices will be under downward pressure.”
The announcement July 31 that a Coffeyville, Kansas, refinery that gets oil from Cushing, Oklahoma may be offline for most of August sent WTI to a four-month low. The 115,000-barrel- a-day plant may remain idle for four weeks after a July 29 fire, CVR Refining LP Chief Executive Officer Jack Lipinski said.
Cushing supplies fell to 17.9 million in the week ended July 25, the least since October 2008, according to an Energy Information Administration report July 30. Stockpiles have dropped from a peak of 41.8 million this year as new pipelines have sent oil to the Gulf Coast, home to about half of U.S. refining capacity.
“We’re all anxious about tomorrow’s data,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “WTI has been supported by the fall in Cushing supplies this year. Coffeyville being offline may change the whole formula and we may see a supply gain.”
U.S. crude inventories probably fell 1.55 million barrels last week, according to the median of 10 analyst responses in the Bloomberg survey before tomorrow’s EIA report. They were split over whether gasoline supplies rose or fell and forecast that distillates gained.
Gasoline for September delivery dropped 0.94 cent, or 0.3 percent, to close at $2.7155 a gallon on the Nymex. It was the lowest settlement since Feb. 6. Pump prices slipped 1 cent to $3.49 a gallon nationwide yesterday, the lowest since March 11, according to AAA, the largest U.S. motoring group.
Ultra low sulfur diesel for September delivery declined 2.43 cents, or 0.9 percent, to settle at $2.8469 a gallon.
U.S. gasoline consumption peaks during the summer driving season from late May to early September.
“We’re seeing considerable seasonal weakness in gasoline,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The price action reflects the step down to a lower demand level in mid-September.”
Brent also fell after Libya said it’s in talks to resume exports at the Es Sider oil port, the country’s biggest. Es Sider has a capacity to load 340,000 barrels a day.
Kurdish fighters recaptured Sinjar and Rabia’ah after heavy fighting yesterday, the Kurdistan Democratic Party said. At least 50 Islamic State militants were killed in the battle for Wana south of Mosul dam.
WTI reached a nine-month high in June after militants from a breakaway al-Qaeda group known as Islamic State captured the city of Mosul. Futures dropped when the rebel advance stalled, sparing the country’s south, home to more than three-quarters of its oil output.
“Prices climbed to a new high right after the Iraqi headlines in June but have been falling ever since,” Schork said. “Once it became clear that supply was continuing to flow, the urgency left the market. The bulls better make a stand or we will soon be testing $95.”
Ukraine expressed alarm about a new buildup of Russian forces on its border, intensifying a conflict the United Nations agency for refugees says has displaced hundreds of thousands. Futures surged when Russia annexed Crimea from Ukraine in March.
“There’s not been an outbreak of peace in Libya, Iraq or Ukraine,” Evans said. “We’ve seen a massive change in market sentiment and trade flows but no change in fundamentals. An intensification of violence in any of these places could easily send prices higher again.”