Jan. 7 (Bloomberg) -- Oil futures tumbled 12 percent, the most in more than seven years, after a U.S. government report showed a bigger-than-expected increase in supplies of crude oil, gasoline and distillate fuel as demand dropped.
Inventories of crude oil rose 6.68 million barrels to 325.4 million barrels last week, the highest since May, the Energy Department said today in a weekly report. Supplies were forecast to increase by 800,000 barrels, according to the median of forecasts by 14 analysts in a Bloomberg News survey.
“We have the making of a huge glut here,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “Supplies are more than adequate and should continue to rise because demand is so poor.”
Crude oil for February delivery fell $5.84, or 12 percent, to $42.74 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Prices are heading for the biggest one-day decline since Sept. 24, 2001. Futures are down 55 percent from a year ago.
Inventories at Cushing, Oklahoma, where oil that’s traded on Nymex is stored, climbed 14 percent to 32.2 million barrels last week, the highest since at least April 2004, when the department began keeping track of supplies there.
“We’re pushing up toward capacity limits,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York. “There’s still a bit of space, but not much.”
Contango
The price of oil for delivery next December is 34 percent more than for February, increasing the opportunity for traders to profit. This price structure, in which the subsequent month’s price is higher than the one before it, is known as contango. Contango trading encourages companies to increase stockpiles if they have available storage.
“It’s not a surprise we’re building inventories,” said Tom Knight, trading director at Truman Arnold Cos. in Texarkana, Texas. “Look at the contango. You’d be an idiot not to take advantage of that.”
Gasoline inventories rose 3.33 million barrels to 211.4 million barrels, the department said. Supplies were forecast to increase by 1 million barrels. Distillate supplies, which include heating oil and diesel, climbed 1.79 million barrels to 137.8 million barrels. A gain of 1.1 million barrels was forecast.
Gasoline futures for February delivery dropped 11.02 cents, or 9.3 percent, to $1.079 a gallon in New York. Heating oil for February delivery fell 8.03 cents, or 4.9 percent, to $1.546 a gallon.
U.S. fuel consumption during the four weeks ended Jan. 2 averaged 20.1 million barrels a day, down 2.9 percent from a year earlier, the report showed.
Imports Rebound
Imports of crude oil increased 13 percent to 10.5 million barrels a day last week, the biggest one-week gain since the week ended Oct. 3, when the Gulf Coast was recovering from hurricanes Gustav and Ike.
Refineries operated at 84.6 percent of capacity last week, up 2.1 percentage points from the week before, the report showed. Analysts forecast that there would be no change in utilization.
Yesterday, crude reached a five-week high on the conflict between Israel and Hamas in the Gaza Strip, Russia’s gas dispute with Ukraine, and signs that OPEC members are enacting supply cuts. It later fell as manufacturing data indicated the U.S. recession is deepening.
“The U.S. numbers are obviously quite dramatic, but should not really have been a surprise,” Eagles said. “There are significant issues in the Middle East and concerning gas in Europe, but how long will they remain a major worry?”
Brent crude oil for February settlement declined $4.53, or 9 percent, to $46 a barrel on London’s ICE Futures Europe exchange.
‘Isn’t a Weapon’
Saudi Foreign Minister Prince Saud al-Faisal said oil “isn’t a weapon” to end fighting in the Middle East. Prince al- Faisal, speaking at a press conference in New York, said oil “can’t reverse a conflict,” when asked about an Iranian call for Arab states to stop producing as a means of putting pressure on countries backing Israel.
Oil surged in 1974, helping spur a recession in the developed world, after an oil embargo that followed the Arab-Israeli war in October 1973.
“The violence in Gaza and the natural-gas crisis in Europe aren’t enough to keep the rally going when the economy is so weak,” said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut. “It looks like the $50 area will be the top of our range.”
Floating Storage
Frontline Ltd., the world’s biggest owner of supertankers, said oil traders want to charter as many as 10 vessels to hold crude to take advantage of higher prices later in the year.
About 25 supertankers were already hired for storage and there are inquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of the company’s management unit, said by phone today.
Prices also dropped on concern that fuel demand will decline because of the recession in the U.S., Europe and Japan. Companies in the U.S. eliminated an estimated 693,000 jobs in December, the most since records began in 2001, a report based on payroll data showed. The drop in the ADP Employer Services gauge was larger than estimated by economists in a Bloomberg News survey.
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Topic: Oil Tumbles 12 Percent as U.S. Supplies Rise More Than Forecast (Read 367 times)