Oil fell as U.S. crude stockpiles and output advanced to the highest level in more than three decades, a sign that a global supply glut will linger.
Crude supplies rose 4.87 million barrels to 417.9 million last week, the most in records compiled since August 1982 by the Energy Information Administration. Inventories were last above 400 million barrels in 1931, monthly data show. Crude output increased 49,000 barrels a day to 9.23 million, the highest level in weekly estimates that started in January 1983.
Lower prices are needed for U.S. output to slow enough to rebalance global markets, Goldman Sachs Group Inc. said in a report Tuesday. West Texas Intermediate crude, the benchmark grade, has dropped 50 percent from a year ago as surging global output growth has outpaced sluggish demand, and OPEC decided to let rival producers deal with surplus supply.
“This report is a clear reminder of the abundance of oil,” John Kilduff, a partner at Again Capital LLC, a New York- based hedge fund that focuses on energy, said by phone. “There’s a growing global supply glut. U.S. inventories are now at the highest level in 80 years according to the EIA and there’s no relief in sight.”
WTI for March delivery dropped $1.18, or 2.4 percent, to settle at $48.84 a barrel on the New York Mercantile Exchange. Prices touched $43.58 on Jan. 29, the lowest since March 2009. The volume of futures traded was 60 percent above the average for the past 100 days, according to data compiled by Bloomberg.
Brent for March settlement dropped $1.77, or 3.1 percent, to end the session at $54.66 a barrel on the London-based ICE Futures Europe exchange. Volume was up 11 percent from the 100- day average. The European benchmark crude closed at a $5.82 premium to WTI.
Crude stockpiles were projected to climb 3.75 million barrels in the week ended Feb. 6, according to the median of eight analyst estimates in a Bloomberg survey.
“WTI is showing some resilience in the face of a further significant build in U.S. crude inventories,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “WTI has to get some credit for not breaking down completely. Fundamentally, we have to wonder at what level U.S. stocks will top out and how that will weigh on the market.”
Inventories of crude at Cushing, Oklahoma, the delivery point for WTI traded in New York, climbed 1.21 million barrels to 42.6 million, the highest since July 2013, according to the EIA, the Energy Department’s statistical arm. Supplies in the Midwest, known as Padd 2, advanced 1.26 million barrels to a record 124.1 million last week.
The combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central U.S.
Refineries operated at 90 percent of their capacity, up from 89.9 percent the previous week. U.S. refineries typically schedule planned work for late winter, when they move from maximizing distillate output to producing gasoline.
Gasoline supplies rose 1.98 million barrels to 242.6 million. Inventories of distillate fuel declined 3.25 million to 131.2 million.
Gasoline futures for March delivery declined 0.91 cent, or 0.6 percent, to close at $1.5432 a gallon in New York. March ultra low sulfur diesel fell 1.86 cents, or 1 percent, to settle at $1.8141.
Regular gasoline at U.S. pumps is rebounding after dropping to the lowest level since April 2009 on Jan. 25. The average retail price rose 2.8 cent to $2.213 a gallon on Tuesday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.
U.S. crude production is forecast rise by 7.8 percent to 9.3 million barrels a day this year, the fastest pace since 1972, the EIA said in its monthly Short-Term Energy Outlook on Tuesday. That’s down 10,000 barrels a day from its projection last month.
U.S. oil drillers cut the number of rigs in service by a record 435 to 1,140 in the nine weeks ended Feb. 6, data from Baker Hughes Inc. showed. That’s the least since December 2011. The decline remains short of a level needed to balance the market, according to Damien Courvalin, a New York-based analyst at Goldman Sachs.
“The fall in the rig count and capital expenditure cuts are going have a noticeable impact in crude output,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone.
Iraq, Kuwait and Iran joined Saudi Arabia this month in lowering their crude prices for Asia, signaling members of the Organization of Petroleum Exporting Countries are seeking to defend market share rather than support prices.
Apollo Global Management LLC’s head of energy investing said the worst is still to come for oil as OPEC may decide against cutting production for years.
“They have every economic incentive to let this play out,” Greg Beard said of OPEC on Wednesday at the SuperInvestor U.S. conference in San Francisco. “I argue to being bearish longer. The worst, the problems, are yet to come.”
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