WTI crude falls from 2-week high as U.S. inventories rise

NEW YORK (Bloomberg) -- West Texas Intermediate crude fell from a two-week high after an Energy Information Administration report showed U.S. inventories rose the most in five months.

Supplies gained 3.67 MMbbl barrels in the seven days ended Sept. 12, the first increase in five weeks, the EIA, the Energy Department’s statistical arm, said. Analysts surveyed by Bloomberg had expected a drop of 1.5 MM bbl. Brent widened its premium to WTI as Libya halted its biggest oil field.

“The big build in crude is going to put a lot of downward pressure on WTI,” Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said by phone. “Production is rising here, otherwise we would be looking at much higher prices because of the geopolitical situation.”

WTI for October delivery slipped $1.01, or 1.1%, to $93.87/bbl at 1:30 p.m. on the New York Mercantile Exchange. The volume of all futures traded was 28% above the 100-day average for the time of day. Prices are down 4.6% this year.

Brent for November settlement fell 43 cents to $98.62/bbl on the ICE Futures Europe exchange after earlier rising as much as 0.6%. Volume was 8.4% below the 100-day average. The European benchmark crude traded at a $5.81 premium to November WTI futures. The spread closed at $5.24 yesterday.

‘Large Build’

Crude supplies climbed to 362.3 MMbbl last week, the EIA said. Stockpiles at Cushing, Oklahoma, the delivery point for WTI futures, fell 357 M bbl to 20 million

Production of crude climbed to 8.84 MMbpd, the highest level since 1986. The combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central U.S.

“We saw a large build today,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “The trend is still down here for oil. With the amount of oil we have out there, prices are going to go lower.”

Gasoline supplies declined 1.64 MMbbl to 210.7 million. Demand for the fuel in the four weeks ended Sept. 12 dropped 0.2% to 8.98 MMbpd, the least since July.

Fuel Inventories

Stockpiles of distillate fuel, a category that includes diesel and heating oil, climbed 279 Mbbl to 127.8 MMbbl, the highest level since Sept. 27, 2013.

October gasoline futures dropped 0.77 cent to $2.5511/gal on the Nymex. Ultra low sulfur diesel for October delivery fell 1.5 cents to $2.7413/gallon.

Refineries used 16.3 MMbpd of crude last week, down 0.2%. The utilization rate was 93%.

“The crude runs are still above 16 MMbpd,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “We are still putting in a lot of crude in the middle of September. That’s almost bullish.”

Brent rose earlier after Libya halted its biggest oil field. The Sharara field, producing about 250 Mbpd, was shut as a precaution after a rocket attack two days ago on the connected Zawiya refinery, Mansur Abdallah, director of oil movement at the plant, said by phone today.

The North African nation, still restoring output after more than a year of political unrest and protests, was producing 870 Mbpd as of Sept. 14, National Oil Corp. spokesman Mohamed Elharari said that day.

The fluid political situation in Libya can lead to unplanned supply disruptions, while sustaining higher production in the longer term might be difficult “given the absence of strong governance mechanisms,” Miswin Mahesh, an analyst at Barclays Plc in London, said by e-mail.