BLBG: Crude Oil Falls as Deepening Recession Causes Supplies to Swell
Crude oil fell after U.S. stockpiles increased and data signaled the economic slump is deepening around the world.
U.S. crude inventories rose four times more than forecast to the highest since August 2007 as refineries cut operating rates, the Energy Department said yesterday. Recession in the world’s largest energy consumer has cut demand for heating and motor fuels. The U.K. economy shrank more than forecast during the fourth quarter, posting the biggest contraction since 1980.
“The market is still absorbing the picture of poor demand from the inventory data,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “Even with refiners cutting runs, product stocks are very high compared to five year-averages.”
Crude oil for March delivery fell as much as $1.74, or 4 percent, to $41.93 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $42.67 a barrel at 11:58 a.m. London time.
Prices are down 3.8 percent since the end of December and 51 percent lower than a year ago.
The Organization of Petroleum Exporting Countries will cut supplies by 5.4 percent this month to 26.15 million barrels a day, according to preliminary estimates from consultant PetroLogistics Ltd., following the group’s announcement last month of a record production cut in response to tumbling prices.
“There is a high risk that oil prices will test $30 again,” Yingxi Yu, a commodities analyst at Barclays Capital in Singapore, said in a Bloomberg Television interview. “There is potential for going below that as demand continues to weaken and crude inventories continue to accelerate.”
Brent Oil
Brent crude oil for March settlement fell as much as $1.34, or 2.1 percent, to $44.05 a barrel on London’s ICE Futures Europe exchange.
U.K. gross domestic product fell 1.5 percent from the previous quarter, the Office for National Statistics said today in London. Economists predicted 1.2 percent, according to the median of 33 estimates in a Bloomberg News survey. The economy has now shrunk in two quarters, the conventional definition of a recession.
China’s economic slowdown, already the deepest in seven years, is set to worsen, according to economists in a Bloomberg News survey. China is the world’s second-biggest energy user.
Gross domestic product will grow 6.3 percent this quarter from a year earlier, the survey showed. The country’s economy expanded 6.8 percent in the fourth quarter.
Supplies of crude oil in the U.S. rose 6.1 million barrels to 332.7 million last week, the highest since August 2007, the Energy Department said yesterday. Stockpiles were forecast to climb by 1.4 million barrels by a Bloomberg News survey.
U.S. Consumption
Fuel consumption in the U.S., the world’s biggest oil consumer, during the four weeks ended Jan. 16 averaged 19.4 million barrels a day, down 4.7 percent from a year earlier, the Energy Department report showed.
Supplies at Cushing, Oklahoma, where oil traded on Nymex is stored, climbed 0.7 percent to 33.2 million barrels last week, the highest since at least April 2004, when the department began keeping records for the location. Gasoline inventories increased 6.48 million barrels to 220 million. Refineries reduced operating rates, or runs, by 2 percentage points to 83.3 percent, the lowest for the week since 1991.
The price of oil for delivery in April is $2.53 higher than for March, and December futures are up $10.91 from the front month. This structure, in which the subsequent month’s price is higher than the one before it, is known as contango, and is often an indicator of oversupply.
‘Steep Curve’
“It’s still a very steep curve,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. “There’s no place to store this stuff so people are putting it into the very visible inventories.”
Companies including Citigroup Inc.’s Phibro LLC, Royal Dutch Shell Plc and BP Plc have stored oil on tankers as the contango allows them to profit from hoarding crude.
Distillate supplies, which include heating oil and diesel, rose 790,000 barrels to 145 million barrels. Stockpiles were forecast to climb by 500,000 barrels.
