Crude oil futures prices slumped below $102 a barrel Thursday as worries over near-term weak U.S. oil demand eclipsed concerns over the potential disruption to Iran's oil supplies.
The Energy Information Administration said inventories of crude oil and key refined petroleum products in the U.S., the world's biggest oil consumer, rose far more than expected last week. The stockbuilds came as total demand in the week ended Dec. 30 slumped to a 14-year low for the last week of the year. At just over 18 million barrels a day, U.S. oil use was 1 million barrels a day below the year-earlier level.
Crude oil stocks rose 2.2 million barrels against an expected drop of 900,000 barrels, while increases in inventories of gasoline and distillate fuel (heating oil and diesel) were up by even greater amounts.
Demand for gasoline, the most widely used petroleum product, was at a 13-year low for the last week of the year, and was 3.4% below a year ago, the EIA data show.
"The numbers are bearish, there is no doubt about it," said Carl Larry, analyst at Oil Outlooks and Opinions.
Prices tried to rebound after the data, but a reversal in gains in equities prices spurred a late bout of selling.
Light, sweet crude oil for February delivery on the New York Mercantile Exchange settled $1.41, or 1.4%, lower at $101.81 a barrel. Prices had surged 4.4% in the previous two days on rising tensions as the U.S. and Europe have moved to tighten sanctions on Iran over its nuclear intentions. Iran has said it could shut down the vital Strait of Hormuz waterway, which is the exit route from the oil-rich Gulf of 20% of the global daily oil consumption.
ICE North Sea Brent crude oil fell 96 cents to $112.74 a barrel. The European Union said Wednesday it reached an agreement in principle to impose an embargo on Iranian crude oil imports, but has yet to finalize details. Traders said Brent prices would be poised to gain as European refiners search for alternative supplies in the event of an embargo.
Traders and analysts estimated that oil prices currently include a $5 to $10 premium on uncertainty over the Iran issue. Kyle Cooper, managing partner at IAF Energy Advisors in Houston, said that will continue to underpin U.S. prices near $100, even in the face of "horrific" U.S. demand data.
"The demand picture is dismal" in the U.S., Cooper said. "But from a trading standpoint, it is very difficult to be short," or take a market position that assumes a decline in prices.
Cooper said recent movements of U.S. Navy ships in the region show that the U.S. would intervene to keep oil flowing from the region in the event of any effort by Iran to disrupt supplies. "A price spike is a foregone conclusion" in the event of any regional hostilities, he said, but he expressed doubts over the likelihood of a long-term supply disruption.
The U.S. is urging major importers of Iranian oil to "significantly" cut their purchases and subsequently could provide a number of countries exceptions under a new sanctions law in exchange for finding supplies elsewhere, according to government officials and people familiar with the matter. Iran's Foreign Minister Ali Akbar Salehi said Thursday his country is "not concerned" about European Union moves to ban Iranian oil imports and will survive them as it has other Western sanctions.
Meantime, the Organization of Petroleum Exporting Countries produced just over 31 million barrels of oil a day in December, a Dow Jones Newswires survey shows. That's 1 million barrels a day above the 30 million-barrel-a-day production ceiling agreed to in mid-December. Analysts said it remains to be seen how much OPEC may reduce output given current high prices.
Reformulated gasoline blendstock futures for February delivery settled 4.87 cents lower, at $2.7365 a gallon. February heating oil futures settled 5.11 cents lower, at $3.0388 a gallon. Both drops were the biggest one-day declines since Dec. 14.
Copyright (c) 2012 Dow Jones & Company, Inc.
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