Bloomberg News

Crude Oil Declines Most in Three Weeks on U.S. Inventory Gain

October 26, 2011

Oct. 26 (Bloomberg) -- Crude oil dropped the most in more than three weeks after a government report showed a larger-than- projected gain in U.S. stockpiles and amid concern that European debt-crisis talks are stalling.

Futures fell 3.2 percent after the Energy Department said supplies rose 4.74 million barrels to 337.6 million last week, more than triple the gain estimated by analysts surveyed by Bloomberg News. EU leaders are meeting for the second summit in four days in an attempt to reach an agreement to bolster a rescue fund, strengthen banks and bail out Greece.

“The crude number was very bearish,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “If we were trading on the inventories alone, we would be in the lower $80s.”

Crude oil for December delivery fell $2.97 to settle at $90.20 a barrel on the New York Mercantile Exchange. The contract’s drop was the biggest since Sept. 30. Futures increased 2.1 percent to $93.17 yesterday, the highest settlement since Aug. 2, and have gained 15 percent in October.

Brent oil for December dropped $2.01, or 1.8 percent, to end the session at $108.91 a barrel on the London-based ICE Futures Europe exchange. The difference between Nymex crude and Brent widened to $18.71 today. The spread is down 33 percent from a record high of $27.88 on Oct. 14.

Supplies were forecast to gain 1.48 million barrels, according to the median of 12 analyst estimates in a Bloomberg News survey.

Imports increased 1.45 million barrels a day, or 18 percent, to 9.37 million last week, the biggest gain since September 2008, the reports showed. Fuel imports surged 591,000 barrels, or 42 percent, to 2 million barrels a day.

Cushing Stockpiles

Inventories at Cushing, Oklahoma, the delivery point for New York-traded futures of West Texas Intermediate oil, rose 419,000 barrels to 31.5 million in the week ended Oct. 21, according to the department.

“The nationwide gain was larger than expected and there was a substantial increase at Cushing,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The supply gain puts the recent rally in WTI prices in jeopardy.”

Stockpiles on the Gulf Coast, or PADD 3, surged 4.76 million barrels to 167.2 million. Inventories on the West Coast climbed 2.05 million barrels to 50.7 million, the biggest gain since April.

Refineries operated at 84.8 percent of capacity, up 1.7 percentage points from the prior week, the report showed. Operating rates dropped in the prior four weeks.

Deadlocked Negotiations

European Union talks with banks on bondholder losses as part of a second Greek bailout were deadlocked, an EU official said, dimming the chances for a comprehensive crisis-fighting strategy at the meeting. This is the 14th emergency summit in 21 months.

The principal goal of the summit is to lower Greece’s debt level to 120 percent of gross domestic product by 2020, German Chancellor Angela Merkel said. The current level is about 160 percent. The Greek deadlock darkens the summit’s prospects, since deals on recapitalizing banks and bolstering the 440 billion-euro ($608 billion) rescue fund hinge on steering debt- laden Greece back toward financial health.

French President Nicolas Sarkozy plans to call Chinese leader Hu Jintao tomorrow to discuss China contributing to the fund, said a person familiar with the matter.

Greek Debt

“How the Europeans get a handle on the crisis is uncertain,” said Jason Schenker, president of Prestige Economics, an energy advisory company in Austin, Texas. “They will probably come to an agreement, but we’re unsure about the time frame and pain involved.”

EU policy makers and bondholders were converging on a 50 percent writedown of Greek debt, clashes over the structure of the transaction will limit the summit to issuing a mandate for further talks, an official said in Brussels on condition of anonymity.

“The chances of a quick resolution to the European crisis don’t look good,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Prices rebounded earlier after the Commerce Department reported that orders for U.S. durable goods other than transportation gear rose in September by the most in six months. Demand for goods meant to last at least three years, excluding airplanes and automobiles, climbed 1.7 percent.

U.S. GDP

A report tomorrow may show gross domestic product expanded at a 2.5 percent annual pace in the third quarter, the most in a year, according to the median forecast in a Bloomberg News survey of economists. The GDP figure for the last three months would follow a 1.3 percent pace of growth in the second quarter.

“The durable good number today was mind-blowingly good, but people are still worried about tomorrow’s GDP report,” Schenker said. “There are many components to the GDP and its unclear what the report will show.”

Oil volume in electronic trading on the Nymex was 726,798 contracts as of 3:34 p.m. in New York. Volume totaled 1.06 million contracts yesterday, 54 percent above the three-month average. Open interest was 1.39 million contracts.

--With assistance from Rachel Graham in Belfast. Editors: Richard Stubbe, Dan Stets

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


Ebola Rising
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus