Crude Drops as Traders Eye Rising Supplies

U.S. crude-oil futures ended lower Tuesday as investors focused on new indications that oil supplies are rising.

Light, sweet crude for June delivery settled 54 cents, or 0.6%, lower at $95.62 a barrel on the New York Mercantile Exchange, after rising as high as $96.26 a barrel earlier in the session. Brent crude on the ICE Futures Exchange fell $1.06 to settle at $104.40 a barrel.

After a brief spike early in the session, U.S. oil futures slumped, dropping from one-month highs Monday. Analysts and traders said the decline was due to growing concerns that oil supply is outstripping demand.

Saudi Arabia, the world's largest oil exporter, increased crude production in April to 9.2 million barrels a day, the highest level since December, according to data from the U.S. Energy Information Administration. The data also showed overall output from members of the Organization of Petroleum Exporting Countries rose to a five-month high.

In the U.S., crude-oil stockpiles rose to 395.3 million barrels as of April 26, the highest level in over 30 years. Analysts expect stockpiles to rise by an additional 1.7 million barrels in data due Wednesday, according to a survey by Dow Jones Newswires.

"The supplies are overwhelming," said Mark Waggoner, president of Excel Futures, who sees further price declines ahead.

The EIA is due to report weekly U.S. stockpiles data at 10:30 a.m. EDT Wednesday. Gasoline stockpiles are expected to fall by 300,000 barrels, while stocks of distillate, which include heating oil and diesel, are seen rising by 400,000 barrels.

Refineries are expected to increase operations by 0.4 percentage point to 84.8% of capacity.

The American Petroleum Institute, an industry group, is due to release its own survey at 4:30 p.m. EDT Tuesday.

Early in Tuesday's trading session, prices briefly spiked into positive territory. The market has gotten jumpier in recent days as traders' attention turns to potential conflict in the Middle East.

On Tuesday, rumors of new military activity in the Middle East briefly sent prices above $96 a barrel, but without confirmation, prices quickly reversed course to trade lower.

The airstrikes by Israel over the weekend in Syria have put investors on edge, as any escalation of military conflict in the oil-rich region could send futures sharply higher.

"The market was very nervous on Sunday night, but it came right back down to earth yesterday," said Ray Carbone, president of Paramount Options, referring to the strikes over the weekend. "We're now susceptible to 30-to-75-cent moves on nothing."

Front-month June reformulated gasoline blendstock, or RBOB, settled 3.23 cents, or 1.1%, to $2.8334 a gallon. June heating oil settled 0.75 cent higher at $2.9277 a gallon.

Copyright (c) 2012 Dow Jones & Company, Inc.


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