WTI Crude Declines After U.S. Stockpiles Unexpectedly Increase

Aug 13, 2014 12:23 pm ET

Aug. 13 (Bloomberg) -- West Texas Intermediate oil declined a second day after a government report showed that U.S. crude inventories unexpectedly increased.

Crude stockpiles rose 1.4 million barrels to 367 million last week, Energy Information Administration data showed. A 2.05 million-barrel supply drop was projected in a Bloomberg survey. Output gained as refinery utilization fell. Kurdish forces fought to retake positions overrun by Islamic State fighters in northern Iraq as Prime Minister Nouri al-Maliki tried to cling to power in OPEC’s second-biggest oil producer.

“This shows that there’s plenty of crude,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston. “The increase in U.S. oil production has displaced imports, which is keeping the world well-supplied. If not for the U.S. output gains we would have seen a spike because of all the geopolitical issues out there.”

WTI for September delivery fell 38 cents, or 0.4 percent, to $96.99 a barrel at 12:08 p.m. on the New York Mercantile Exchange. Futures traded at $97.18 before the release of the report at 10:30 a.m. in Washington. The volume of all futures traded was 16 percent above the 100-day average.

Brent for September settlement rose 36 cents to $103.38 a barrel on the London-based ICE Futures Europe exchange. Volumes were 41 percent higher than the 100-day average. The contract touched $102.37, the lowest since July 1, 2013. The European benchmark traded at a $6.39 premium to WTI, up from $5.65 yesterday.

Seven Weeks

It was the first supply gain in seven weeks. Inventories dropped 22.5 million barrels to 365.6 million in the previous six weeks, according to the EIA, the Energy Department’s statistical arm.

Crude supplies at Cushing, Oklahoma, rose by 418,000 barrels to 18.4 million last week, data from the EIA, the Energy Department’s statistical arm, showed.

The EIA cut its 2014 price forecast for WTI after the U.S. reached its highest monthly output in 27 years in July. Futures will average $100.45 this year versus the July projection of $100.98, the agency said yesterday in its monthly Short-Term Energy Outlook. Oil output was 8.5 million barrels a day in July, the most since April 1987.

U.S. refineries operated at 91.6 percent of their capacity last week, down 0.8 percentage point from Aug. 1, according to the EIA.

Inventories of gasoline declined 1.16 million barrels to 212.7 million, the report showed. Demand for the fuel dropped 0.4 percent to 9.02 million barrels a day in the past four weeks, the report showed.

Pump Prices

Gasoline for September delivery dropped 1.74 cents, or 0.6 percent, to $2.7171 a gallon on the Nymex. Gasoline pump prices dropped 0.1 cent to $3.473 a gallon nationwide yesterday, the lowest since March 4, according to AAA, the largest U.S. motoring group.

Stockpiles of distillate fuel, a category that includes diesel and heating oil, tumbled 2.42 million barrels to 122.5 million. It was the biggest decline since March. Distillate consumption rose 1.9 percent to 3.95 million, the highest since the week ended June 13.

Ultra low sulfur diesel for September delivery rose 2.08 cents, or 0.7 percent, to $2.8658 a gallon.

“We’re finally starting to get some strength in distillate demand,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.

Demand Growth

Brent slid yesterday after the International Energy Agency said demand growth eased last quarter, while crude production in the Organization of Petroleum Exporting Countries increased. OPEC crude output increased by 300,000 barrels a day to 30.44 million in July, a five-month high, amid gains from Saudi Arabia, the IEA said in its monthly oil market report.

Aggregate financing in China was 273.1 billion yuan ($44 billion) in July, the central bank said today in Beijing, contrasting with a Bloomberg LP gauge that showed China loosened monetary conditions last quarter at the fastest pace in almost two years. Factory production rose 9 percent from a year earlier in July, compared with 9.2 percent in June, figures from the statistics bureau showed.

Kurdish peshmerga troops, bolstered by U.S. air strikes, fought Islamic militants near the town of Sinjar, Iraq, according to Nineveh provincial council member Hisham al- Brefkani. The push came as France said it would supply the Kurds with weapons and the U.S., which is also carrying out air surveillance missions, deployed scores of military advisers.

Air Strikes

President Barack Obama, who authorized limited air attacks against Islamic State after it made rapid gains last week, has tied expanded U.S. action to the formation of a more inclusive government capable of easing sectarian and ethnic divisions. The conflict has spared supply from Iraq’s south, home to more than three-quarters of its crude output.

A crude tanker left Ras Lanuf port yesterday, Libya National Oil Co.’s spokesman, Mohamed Elharari, said. The vessel, carrying 680,000 barrels of oil, was bound for Italy, according to Ibrahim Al-Awami, the Oil Ministry’s director of measurement.