Crude oil futures prices settled 1.3% lower Wednesday, hit by a steep fall drop in U.S. oil demand and a sharp rise in fuel stockpiles.
Prices ended at the lowest level so far in 2012, but were supported above $100 a barrel by growing concerns about the reliability of near-term crude oil supply from Iran and Nigeria.
A Nigerian union leader said Wednesday that workers at oil platforms are on "red alert" and ready to shut down facilities in a growing national strike that erupted in response to soaring fuel costs after the government abruptly halted a $7 billion fuel-subsidies program. Nigeria pumped 2.2 million barrels a day in December, according to U.S. estimates, and supplied 9% of U.S. crude oil imports in the first 10 months of 2011.
Meantime, U.S. Treasury Secretary Timothy Geithner on Wednesday urged top Chinese officials to significantly reduce imports of Iranian crude, after a new U.S. sanctions policy focused on nations that continue trading with Iran. Countries can avoid those sanctions by showing a significant reduction in Iranian oil imports.
But U.S. oil inventory data showing larger-than-expected gains in crude oil and petroleum products stocks called the market tune.
Light, sweet crude oil for February delivery on the New York Mercantile Exchange settled $1.37, or 1.3%, lower, at $100.87 a barrel, after hitting a low of $100.55 on the U.S. data. The price was the lowest since Dec. 30. ICE North Sea Brent crude oil settled $1.04 lower, at $112.24 a barrel.
The Energy Information Administration reported U.S. crude oil stocks rose 5 million barrels last week, well beyond an expected 1.1-million-barrel rise. The gain put crude stocks above the year-earlier level for the first time since July.
Stocks of gasoline and distillate fuel (diesel/heating oil) also rose more than expected amid weak demand. Gasoline use fell to a nine-year low and pulled total oil demand down to its weakest level in 32 months. Inventories of gasoline, distillate fuel, jet fuel and residual fuel together are sufficient to cover 34 days of current demand, the highest level in nearly 13 years, EIA data show.
The data "did some damage to a bullish fundamental case for this market," said Jim Ritterbusch, president of Ritterbusch and Associates.
Despite the undeniably weak U.S. data, Carl Larry, analyst at Oil Outlooks and Opinions, said "people are playing it cautious." He noted that crude failed to fall below $100 a barrel, even in the face of "very bearish" data. Market risks remain skewed to the upside, he said.
"The worst case is that we drop back to $95," he said. "But in a heartbeat we could be at $120," if the Nigerian and Iranian situations worsen, he said.
The diplomatic push by the U.S. comes as the European Union is expected this month to finalize plans to ban imports of Iranian crude amid widespread concerns that Iran is pursuing a nuclear weapons program. Iran has said its nuclear program has a peaceful intent.
Tensions flared anew as a top Iranian nuclear scientist was killed in a Tehran car bombing, the fourth such episode in the past two years. Iran immediately blamed the U.S. and Israel for the killing and the U.S. rejected the accusation. As the U.S. led stepped-up diplomatic efforts to halt Iran's nuclear program, the second-biggest oil producer in the Organization of Petroleum Exporting Countries has threatened to block the Strait of Hormuz, the source for Gulf oil exports, through which about 20% of the world's daily oil needs flow.
A ranking Republican congressman said Wednesday he received assurances that Saudi Arabia, the world's biggest oil exporter had spare oil-output capacity and will use it to meet customer demand to ensure market stability in the event of stiffer sanctions on Iran. House Majority Leader Eric Cantor made the comments after a Riyadh meeting with the Saudi oil minister.
Reformulated gasoline blendstock futures for February settled 0.95 cent lower at $2.7633 a gallon, while February heating oil fell 3.68 cents to $3.0646 a gallon. Both contracts snapped three-day rising streaks.
Copyright (c) 2012 Dow Jones & Company, Inc.
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