Oil Hits Six-Week Low on ‘Monster’ U.S. Fuel Supply Increase
(Bloomberg) — Oil tumbled to a six-week low after the U.S. government reported a further expansion in gasoline and distillate supplies, signaling lackluster demand.
Futures fell as much as 1.5% in New York as traders focused on a nearly 15-million-barrel increase in U.S. petroleum inventories to the highest level since September, data from the Energy Information Administration showed. Particularly, the dip in interest for distillates goes against seasonal norms and is likely due to recent warmer weather in the Northeast.
“This was a monster product build,” especially after the large build the week before, said Matt Sallee, portfolio manager at Tortoise, a Kansas firm that oversees more than $21 billion in assets. It also didn’t help that U.S. production set a new record high, keeping the market flush with supplies, he said.
U.S. crude futures remain below $60-a-barrel since late last week amid fears of overwhelming supply. The EIA data showed domestic oil production hit a fresh record-high and the Organization of Petroleum Exporting Countries increased forecasts for growth in output from non-members this year. Plus, concerns that the U.S. and Iran are headed for conflict over the killing of an Iranian general, which sent prices soaring earlier this month, have largely dissipated.
West Texas Intermediate crude for February delivery dropped 41 cents to $57.82 a barrel at 11:52 a.m. on the New York Mercantile Exchange, after earlier declining to as low as $57.36.
The prompt WTI futures spread remained in contango, a relationship normally suggesting oversupply. The front-month contract traded at a 5-cent discount to the second-month.
Brent futures for March settlement fell 47 cents to $64.02 a barrel on the ICE Futures Europe exchange. The global benchmark crude traded at a $6.16 premium to WTI for the same month.
The EIA report shows U.S. gasoline stockpiles rose 6.68 million barrels last week, while distillate supplies increased 8.17 million barrels. U.S. crude production hit 13 million barrels a day. The rise in fuel stocks and production overshadowed the 2.55-million-barrel decrease in oil stockpiles.
Meanwhile, U.S. President Donald Trump’s impending initial trade agreement with China, set to be signed Wednesday, has also affected oil prices. The pact, in theory, defuses tensions that weighed on markets throughout last year, but isn’t wholly assuaging concerns.
Existing U.S. tariffs on Chinese goods are likely to stay in place until after the presidential election, people familiar said, while Reuters reported America is drafting more rules to block sales to Huawei Technologies Co.
“While the stay in existing tariffs may be disappointing, further details from the agreement tonight might change the mood in the market,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “Additional positive details, especially pertaining to phase-two negotiations, might yet give crude prices a lift.”
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–With assistance from James Thornhill, Elizabeth Low and Grant Smith.