Oil Trades Near Six-Year Low With U.S. Supply Highest Since 1982

New York (Jan 29)  Crude oil fell to the lowest level in almost six years in New York as rising production swells U.S. stockpiles.

West Texas Intermediate dropped as much as 2 percent, widening its discount to Brent to the most in a month. U.S. crude supplies rose to the highest level in weekly data going back more than three decades, the Energy Information Administration said Wednesday.

Oil has collapsed about 40 percent since the Organization of Petroleum Exporting Countries decided to maintain its output target on Nov. 27, challenging non-OPEC producers to curb their supplies first to alleviate a global surplus. U.S. production rose to the highest since at least 1983 last week, signaling that non-OPEC output hasn’t yet faltered.

“U.S. stockpiles are still very high and the fundamentals are weak,” said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut. “The market will continue to come under pressure. There is really not anything bullish out there.”

West Texas Intermediate for March delivery slipped 84 cents, or 1.9 percent, to $43.61 a barrel at 11:07 a.m. on the New York Mercantile Exchange. Prices fell as low as $43.58, the lowest since March 12, 2009. The volume of all futures traded was about 18 percent below the 100-day average for the time of day.

Brent for March settlement gained 4 cents to $48.51 a barrel on the London-based ICE Futures Europe exchange. It slid $1.13 to $48.47 on Wednesday. The European benchmark’s premium to WTI widened to $4.70 on the ICE, the most since Dec. 26.

Cushing Stocks

U.S. crude supplies rose 8.87 million barrels to 406.7 million last week, the most in records compiled since August 1982 by the EIA.

Inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, rose 2.09 million barrels to 38.9 million, the most since January 2014.

Domestic output increased 27,000 barrels a day to 9.21 million last week, said the EIA, the Energy Department’s statistical arm. It’s the highest level in weekly estimates that started in January 1983. The combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central U.S.

The Brent-WTI spread may widen to $6 as U.S. inventories continue to grow, according to Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy.

“Seasonal U.S. refinery maintenance in the spring will cut into crude demand while U.S. domestic supply continues to grow,” he wrote in a report on Tuesday. “The backing-up of even more oil at Cushing is then quite likely.”

Oil may recover as early as the first half of this year as production declines, said Harold Hamm, chief executive officer of Continental Resources Inc. As the largest leaseholder and producer in the Bakken shale play of North Dakota and Montana, Continental can weather low crude prices “forever” as it idles wells, Hamm said in an interview Wednesday in Houston.

Source:  Bloomberg