Oil Falls to Lowest Close in Seven Weeks on U.S. Supply Gain

Feb. 12 (Bloomberg) -- Crude oil fell to the lowest close in more than seven weeks in New York on concern inventories will extend increases as demand drops.

Supplies have gained in 18 of the past 20 weeks, leaving stockpiles the highest since July 2007, the Energy Department said. World oil consumption will drop 1.7 percent to 84.3 million barrels a day this year, consultant Wood Mackenzie said in a report today. The Energy Department and International Energy Agency cut their demand forecasts earlier this week.

“Inventories keep increasing and we continue to get reports downgrading demand forecasts,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “There’s increasing pressure on crude oil, especially the front month.”

Crude oil for March delivery fell $1.96, or 5.5 percent, to $33.98 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 19. It was the fifth consecutive daily decline. Oil is down 24 percent this year and 63 percent from a year ago.

The discount of West Texas Intermediate, the grade that’s traded in New York, to London’s Brent widened to a record $10.67 a barrel today after supplies at Cushing, Oklahoma, rose.

Brent increased after Royal Dutch Shell Plc said it may miss deliveries of oil from Nigeria because of security concerns. The oil for March settlement climbed 37 cents, or 0.8 percent, to $44.65 a barrel on London’s ICE Futures Europe exchange. March futures expired today. The more-active April contract gained 71 cents, or 1.6 percent, to close at $46.03 a barrel.

Cushing, Oklahoma

Supplies at Cushing, where WTI is stored, climbed 1.7 percent to 34.9 million barrels last week, the highest since at least April 2004, when the department began keeping records for the location.

“Cushing supplies have got to drop before we see the price of WTI recover,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington.

Prices for delivery in future months are higher than for earlier ones, a situation known as contango, allowing buyers to profit from hoarding oil. The price of oil for delivery in April is $8.19 a barrel higher than for March. December futures are up $19.89 from the front month.

“There was another big increase at Cushing, putting more pressure on the front month,” Bentz said. “In December prices reached a low of $32.40, and it looks like we are going to test it again soon.”

December Low

Futures touched $32.40 on Dec. 20, the lowest since February 2004. Traders rushed to sell January futures on that date because the contract expired at the end of the session. March futures in New York will expire on Feb. 20.

Volume in electronic trading on the exchange was 648,177 contracts as of 3:16 p.m. in New York. Volume totaled 713,756 contracts yesterday, 39 percent higher than the average over the past three months. Open interest yesterday was 1.24 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.

The International Energy Agency yesterday reduced its global oil demand forecast for this year, projecting consumption will decline by 1 million barrels a day, the biggest drop since 1982. It’s the agency’s sixth consecutive reduction of its 2009 consumption estimate.

“We simply have way too much oil,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. “The only thing that gives oil a jolt is when the stock market rallies.”

Stimulus Insufficient

President Barack Obama’s stimulus plan will be insufficient to avert the biggest U.S. economic decline since 1946 as consumer spending posts its longest slide on record, according to a monthly Bloomberg News survey. The world’s largest economy will contract 2 percent this year, half a percentage point more than last month’s forecast, according to the survey.

“There’s a lot of skepticism about the stimulus program,” said Adam Klopfenstein, senior market strategist for Lind-Wedlock in Chicago, a division of MF Global Ltd. “The IEA revised global demand lower yesterday and inventories increased more than was expected. This is a fundamentally bearish setup.”

The Organization of Petroleum Exporting Countries will cut shipments by 3.5 percent in February, the biggest monthly drop in at least five years, as the group implements a record production reduction to bolster prices, according to tanker-tracker Oil Movements.

Crude oil prices won’t rebound to the $70 level until the OPEC production cuts are reflected in falling inventories, Ronald Brenneman, the chief executive officer of Petro-Canada, the country’s fourth-largest oil company, said in an interview in New York.

Psychological Turn

“In the short run we have to see these cuts OPEC made starting to make a dent in inventories,” Brenneman said. “We haven’t really seen that have an impact, but it will because it actually exceeds the reduction in demand. Eventually it will eat into inventories, and then there will be a psychological turn in the market and we will start to see prices respond.”

Gasoline supplies fell as refineries shut units last week. Plants operated at 81.6 percent of capacity, down 1.9 percentage points from the prior week, and the lowest since the period ended Oct. 3 when the Gulf Coast was recovering from hurricanes Gustav and Ike, yesterday’s Energy Department report showed.

Gasoline futures for March delivery declined 1.15 cents, or 0.9 percent, to settle at $1.2583 a gallon in New York.

The average U.S. pump price for regular gasoline rose 1.2 cents to $1.952 a gallon, AAA, the nation’s largest motorist organization, said on its Web site today. Prices have declined 53 percent from the record $4.114 a gallon reached on July 17.