Crude Oil Futures Fall on Speculation U.S. Inventories Climbed

Feb. 18 (Bloomberg) -- Crude oil fell for a second day on speculation that a government report tomorrow will show U.S. supplies climbed for the 19th time in 21 weeks as the recession cuts demand.

Stockpiles increased 3.2 million barrels last week, according to a Bloomberg News survey of analysts. A government report today showed that U.S. builders broke ground in January on the fewest houses on record, a sign that the recession in the world’s biggest energy-consuming country will deepen.

“Market sentiment is very glum,” said John Kilduff, senior vice president of energy at MF Global Inc. in New York. “The outlook for energy demand is not improving.”

Crude oil for March delivery fell 31 cents, or 0.9 percent, to settle at $34.62 a barrel at 2:46 p.m. on the New York Mercantile Exchange. Prices are down 22 percent this year. The more-active April contract dropped $1.13, or 2.9 percent, to end the session at $37.41 a barrel. March trading ends on Feb. 20.

Brent crude oil for April settlement declined $1.48, or 3.6 percent, to $39.55 a barrel on London’s ICE Futures Europe exchange. It was the lowest settlement since Dec. 26.

Housing starts plunged 17 percent last month to an annual rate of 466,000, lower than projected, according to figures today from the Commerce Department in Washington. A report from the Federal Reserve showed industrial output sank in January for the sixth time in seven months.

Prices for delivery in future months are higher than for earlier ones, a situation known as contango, allowing buyers to profit from hoarding oil. This has led to record stockpiles at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude is delivered.

‘Problems With Cushing’

“There’s a lot of crude in the Cushing area,” said Francisco Blanch, head of global commodities research at Merrill Lynch & Co. in London. “There are problems with Cushing as a delivery point because of pipeline flows and other issues. This has the potential of limiting the viability of WTI as a benchmark.”

Futures touched $32.40 on Dec. 19, the lowest since February 2004, after a report showed that Cushing stockpiles climbed 21 percent the week ended Dec. 12.

“We have to closely watch the contract expiration on Friday because of the supply pressure at Cushing,” Kilduff said. “We are going to challenge December’s lows and then head into the $20s.”

Gasoline supplies probably declined 500,000 barrels in the week ended Feb. 13, according to the median of 16 responses in the Bloomberg News survey. Stockpiles of distillate fuel, a category that includes heating oil and diesel, dropped 1.5 million barrels, the survey showed.

Delayed Report

The Energy Department is scheduled to release its weekly report tomorrow at 11 a.m. in Washington, a day later than usual because of the Presidents Day holiday. The industry-funded American Petroleum Institute said inventories rose 1.6 million barrels last week to 345.8 million barrels, in a report released at 4:30 p.m. in Washington.

Gasoline futures for March delivery fell 4.66 cents, or 4.2 percent, to $1.0652 a gallon in New York, the lowest settlement since Dec. 31.

The average U.S. pump price for regular gasoline dropped 0.3 cent to $1.957 a gallon, AAA, the nation’s largest motorist organization, said on its Web site today. Prices have declined 52 percent from the record $4.114 a gallon reached on July 17.

Heating oil for March delivery declined 3.95 cents, or 3.3 percent, to end the session at $1.1469 a gallon, the lowest settlement since Aug. 31, 2004.

Falling Demand

U.S. fuel consumption dropped 3.1 percent to an average 19.5 million barrels in January, the lowest for the month in seven years, according to a report today from the API.

“There won’t be any measurable or sustainable rally until we start to see demand recover or inventories drop because of the OPEC production cuts,” said Kyle Cooper, an analyst at IAF Advisors, an energy consultant in Houston.

The Organization of Petroleum Exporting Countries cut oil production 3.5 percent in January, according to a Bloomberg News survey. Producers with output quotas, all members except Iraq, pumped 26.2 million barrels a day, 1.355 million more than their target of 24.845 million barrels a day.

“There’s certainly a lot of gloom out there, but I think it’s overdone,” Blanch said. “Once we get an up-tick in growth, we will hit capacity constraints, which are what gave us such high prices last year.”

Volume in electronic trading on the exchange was 428,621 contracts as of 3:14 p.m. in New York. Volume totaled 568,788 contracts yesterday, 9.2 percent higher than the average over the past three months. Open interest was 1.23 million contracts yesterday. The exchange has a one-business-day delay in reporting open interest and full volume data.