BLBG: Crude Oil Falls as Recession Causes U.S. Supplies to Increase
Crude oil fell after U.S. stockpiles increased and data signaled the recession in the major energy- consuming countries is deepening.
Crude-oil supplies rose four times more than forecast to the highest since August 2007 as refineries cut operating rates, the Energy Department said yesterday. The U.K. economy shrank more than forecast during the fourth quarter, posting the biggest contraction since 1980.
“Yesterday’s inventory report is still hanging over the market,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “There’s more negative economic news today, which is putting additional pressure on the market.”
Crude oil for March delivery fell $1.41, or 3.2 percent, to $42.26 a barrel at 10:30 a.m. on the New York Mercantile Exchange. Prices are down 5.2 percent this year and are 52 percent lower than a year ago.
The Organization of Petroleum Exporting Countries will reduce 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.
“On the bullish side, OPEC members appear to be getting closer to making the cuts they promised,” Bentz said. “They still have a ways to go, but these are substantial cuts.”
Starting this month, the members with production targets, all except Iraq, have a combined quota of 24.845 million barrels a day.
Contango
The price of oil for delivery in April is $2.62 a barrel higher than for March, up from a $2.16 premium yesterday. December futures are up $10.83 from the front month, versus $10.23 yesterday. This structure, in which the future month’s price is higher than the one before it, is known as contango, and is often an indicator of oversupply.
“The contango shows that people expect the economy to be bad for a while,” said Kyle Cooper, an analyst at IAF Advisors, an energy consultant in Houston. “It shows they don’t expect demand to rebound until late this year or 2010.”
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.
‘General Malaise’
“We are moving lower because of the general malaise in the economy,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “Also, it’s hard to be bullish when inventories are so high.”
Fuel demand in the U.S., the world’s biggest oil-consuming country, averaged 19.4 million barrels a day during the four weeks ended Jan. 16, down 4.7 percent from a year earlier, yesterday’s Energy Department report showed.
“Until demand comes back, I don’t see the price coming back,” IAF’s Cooper said. “Of course there will be days when prices move higher, but we shouldn’t see anything sustained.”
U.S. supplies of crude oil rose 6.1 million barrels to 332.7 million last week, the Energy Department said. Stockpiles were forecast to climb by 1.4 million barrels, according to the median of analyst responses in a Bloomberg News survey.
Brent crude oil for March settlement declined $1.13, or 2.5 percent, to $44.26 a barrel on London’s ICE Futures Europe exchange.
