Oil Falls to Two-Week Low as US Crude, Fuel Supply Seen Rising

(Bloomberg) - Oil dropped to the lowest in more than two weeks amid estimates that U.S. crude and gasoline inventories continue to climb.

Futures slipped 1.6 percent in New York. Crude stockpiles probably rose for a fifth week while gasoline supplies approached a record, according to a Bloomberg survey before an Energy Information Administration report on Wednesday. The gasoline crack, the profit from processing oil into gasoline, fell. U.S. crude production is projected to climb to a 48-year high next year, according to a separate EIA report.

Oil has fluctuated above $50 a barrel since a deal to trim output from the Organization of Petroleum Exporting Countries and 11 other nations took effect on Jan. 1. While OPEC members implement pledged cuts and Russia says its own reductions are ahead of schedule, U.S. production has edged higher as drillers boosted the rig count to the most since October 2015.

"Gasoline is just getting slaughtered today, and it’s dragging crude with it," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. "A 2 million-barrel gasoline build would bring us to an all-time high, and crude inventories have been climbing too."

West Texas Intermediate for March delivery fell 84 cents to $52.17 a barrel on the New York Mercantile Exchange. It’s the lowest close since Jan. 19. Total volume traded was near the 100-day average at 2:56 p.m.

Gasoline futures for March delivery dropped 1.5 percent to $1.4875 a gallon, the lowest close since Nov. 29. The March gasoline crack spread, a rough measure of the profit from refining crude into the fuel, dropped as much as 4.7 percent to $9.932 a barrel.

Projected Gains

Inventories of gasoline probably increased 1.6 million barrels to 258.7 million last week, according to the median forecast in the Bloomberg survey. Stockpiles of the motor fuel reached a record 258.7 million barrels in the week ended Feb. 12, 2016.

Crude supplies probably rose 2.5 million barrels, the survey showed. Stockpiles are at 494.8 million barrels, the highest seasonal level in more than three decades, according to weekly data compiled by the EIA since 1982.

U.S. crude output will average 9.53 million barrels a day in 2018, up from 9.3 million projected in January, The EIA said in its monthly Short-Term Energy Outlook released Tuesday. That would be the highest since 1970, agency data show.

The trading boom that cushioned the profits of Royal Dutch Shell Plc and  BP Plc through the price slump appears to be over. BP said on Tuesday it made a "small" loss trading oil in the fourth quarter, while Shell last week said profits "flattened" in late 2016. These companies’ trading divisions thrived in 2015 and 2016 because an unusually strong contango - where contracts for future delivery trade higher than spot prices - made it profitable to store oil.

Brent for April settlement fell 67 cents, or 1.2 percent, to $55.05 a barrel on the London-based ICE Futures Europe exchange. The global benchmark closed at a $2.27 premium to April WTI.

The dollar climbed, making commodities priced in the currency less attractive to investors. The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.3 percent. 

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Carlos Caminada, Jim Efstathiou Jr.


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