Oil futures pulled back Wednesday after the U.S. government reported a bigger-than-expected increase in oil stockpiles. The news undercut fears of supply shortages, which had pushed the market up 8% in the previous three sessions.
Light, sweet crude for December delivery settled down $2.97, or 3.2%, to $90.20 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures Europe exchange settled down $2.01, or 1.8%, to $108.91 a barrel.
A sharp increase in oil imports sent crude inventories last week rising 4.7 million barrels, according to a weekly survey by the Department of Energy. Analysts had expected only a 400,000-barrel build.
"We're getting this huge surge of crude" imports said Phil Flynn, oil analyst at PFG Best in Chicago. "It was a bearish number."
Oil inventories had been in decline in recent months, helping fuel the recent rise in Nymex crude prices. All week, the price of front-month Nymex futures have traded above the price of later-month contracts, a phenomenon that typically signals worries about near-term supply crunch.
On Tuesday, the benchmark U.S. contract soared to a three-month settlement high of $93.17 a barrel. Despite Wednesday's decline, Nymex crude is still up 16% so far in October, helping to narrow its longstanding discount to the European Brent contract by nearly $10 a barrel.
That discount stood at $18.71 a barrel Wednesday. Nymex crude and Brent, which historically have traded just a few dollars apart, had diverged by as much as $27.90 a barrel earlier in October.
"There are fundamental pressures that are making the case for a convergence between those two benchmarks," said Tim Evans, energy analyst at Citi Futures Perspective in New York. He pointed to the return of Libyan crude supplies as weighing on Brent, while Nymex prices are being bolstered by rising winter crude demand on the horizon.
The Department of Energy report, meanwhile, tempered the increase in crude inventories with large draws in the stockpiles of refined fuels. Falling inventories of end products means the now-increasing crude stockpile could eventually be tapped for processed products.
Inventories of gasoline fell 1.4 million barrels, according to the DOE. Stocks of distillates, including heating oil and diesel, dropped 4.3 million barrels. Gasoline stockpiles were expected to fall 1.6 million barrels, while stocks of distillates were seen falling 1.8 million barrels, according to a survey of analysts by Dow Jones Newswires.
In addition, gasoline demand, meanwhile, fell 1.1% last week to its lowest level for that week in 13 years, according to the Department of Energy. The decline signals that the sluggish economy is continuing to keep motorists off the road.
Front-month November reformulated gasoline blendstock, or RBOB, settled down 4.82 cents, or 1.8%, to $2.6516 a gallon. November heating oil settled down 3.44 cents, or 1.1%, to $3.0158 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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