Crude Settles Lower On Inventory Rise

Crude oil futures settled weaker Wednesday after U.S. inventories rose more than expected.

Inventories rose by 3.856 million barrels nationwide last week, well beyond the 900,000-barrel rise that analysts expected, data from the Energy Information Administration show.

Crude stocks of 369 million barrels stand at an 11-month high and boast the biggest surplus to the five-year average for this time of year in 22 months, EIA data show. Some traders said most of the build occurred on the relatively isolated West Coast, but others said a significant build at Cushing, Okla., the delivery point for the benchmark New York Mercantile Exchange crude oil, spurred the drop in prices.

Cushing stocks topped the year-earlier level for the first time since last July, and hit an 11-month high, ahead of the planned reversal next month of the Seaway pipeline.

That move, which will allow crude to move out of landlocked Midwest terminal to refineries on the Gulf Coast, will create more competition with foreign crude, and North Sea Brent, the European benchmark, has been feeling the pressure.

Light, sweet crude oil for May delivery settled 1.5%, or $1.53 lower, at $102.67 a barrel. Front-month ICE Brent crude for June delivery settled 81 cents lower, at $117.94 a barrel, its lowest price since Feb. 13. Brent's premium to the U.S. benchmark was $15.30 a barrel at Wednesday's settlement, up from $14.58 a day earlier, which was the lowest since Feb. 1. In early April, with Brent near $125 a barrel, the premium neared $21 a barrel.

The EIA also said gasoline stocks fell by a steep 3.671 million barrels, more than the expected drop of 1 million barrels. Normally a drop of that size would send prices shooting higher. But traders said the drop in Brent prices provided greater pressure, and sent reformulated gasoline futures down. RBOB futures are more closely tied to international prices, reflected by the Brent contract.

Front-month RBOB gasoline futures for May settled down 3.13 cents, or 1% lower, at $3.2027 a gallon, the lowest level since Feb. 29. Prices have fallen 15.4 cents in the past four days, helped by weakness in Brent and hopes that U.S. summer gasoline supplies mightn't be as tight as previously feared.

Tim Evans, analyst at Citi Futures Perspective, said there has been a "risk off" approach to RBOB futures after news that Delta Air Lines is in talks to buy and restart ConocoPhillips' 185,000 barrels a day Trainer, Pa. refinery, which was closed last September. Evans also noted that despite the drop this week in gasoline stocks, inventories remain above year-ago and five-year levels.

"You can read this as we are in a bear market and we are failing to react to bullish news, or that there are other things going on that are a bit more important than a one-week stocks divergence from expectations," Evans said.

Without a rebound in Brent prices, Evans said he sees little chance of a strong recovery in gasoline futures prices soon.

Brent has dropped in recent weeks as direct talks between the West and Iran over it nuclear program have replaced rhetoric, and as Saudi Arabia has boosted oil supplies to cover a shortfall of Iranian oil due to the European Union embargo, which goes into effect July 1.

"We've taken a significant portion of the risk premium out of the price," Evans said. "Right this minute there are plenty of liquid hydrocarbons that burn available for anybody who needs them."

Nymex heating oil futures for May delivery settled 0.84 cent lower, at $3.1182 a gallon.