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Oil set for second weekly drop as inventories climb to record
[NEW YORK] Oil headed for a second weekly decline, trading near the lowest levels in two months, as a global energy advisory group said stockpiles in developed nations have reached a record and US crude supplies rose.
West Texas Intermediate futures fell almost 8 per cent this week. Oil inventories have swollen to a record of almost 3 billion barrels because of strong output in Opec and elsewhere, the International Energy Agency said in a report on Friday. US supplies climbed to 487 million last week, the most for this time of year in more than 80 years, according to US government data.
"The market is being overwhelmed by rising supply," said Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital LLC in Miami. "We could test the six-year lows reached in August at any moment. We will either break through or put in a bottom." Crude has dropped 45 per cent in the past year as the Organization of Petroleum Exporting Countries pumped above its collective quota and Russian output rose to a post-Soviet high, swelling global stockpiles. Iran is pushing to regain oil sales lost to sanctions after agreeing in July to accept limits on its nuclear work return for market access. Oil price competition in Europe is set to intensify when Iranian crude returns, the IEA said.
WTI for December delivery dropped 88 cents, or 2.1 per cent, to $40.87 a barrel at 9:56 am on the New York Mercantile Exchange. Futures touched $40.81, the lowest level since Aug 27. The volume of all futures traded was 43 per cent above the 100-day average.
Brent for December settlement, which expires Friday, slipped 16 cents to $43.90 a barrel on the London-based ICE Futures Europe exchange. It touched $43.85, the lowest since Aug 27. The more-active January contract declined 32 cents to $44.87. The European benchmark crude was at a $3.03 premium to WTI.
Total oil inventories in developed nations increased by 13.8 million barrels to about 3 billion in September, a month when they typically decline, according to the IEA. The pace of gains slowed to 1.6 million barrels a day in the third quarter, from 2.3 million a day in the second, although growth remained "significantly above the historical average." There are signs some fuel-storage depots in the Eastern Hemisphere have been filled to capacity, it said.
"The news from the IEA shows what a staggering amount of oil is sitting in storage," Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. "It's also looking like Iran will initiate a production and price war with Russia and Saudi Arabia as it tries to regain market share." Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest oil-storage hub in the US, expanded by 2.24 million barrels through Nov 6, the EIA report showed Thursday. That's the first increase in four weeks and the biggest gain since March. Output rose by 25,000 barrels a day to 9.19 million a day.