Oil down 3 percent on surprise U.S. crude build

Dec 31, 2015

Crude prices fell more than 3 per cent on Wednesday, with Brent sliding toward 11-year lows, after an unusual build in U.S. stockpiles and signs Saudi Arabia will keep adding to the global oil glut.

Crude inventories in the United States, the world’s largest petroleum producer, rose 2.6 million barrels last week, the U.S. Energy Information Administration said. Analysts polled by Reuters had expected a draw of 2.5 million barrels.

Stockpiles hit record highs at the Cushing, Oklahoma delivery hub for U.S. crude’s West Texas Intermediate (WTI) futures. Gasoline and heating oil also posted larger-than-expected stock builds.

“In all the years I have been doing this, I have never seen builds in the last week of December,” said Tariq Zahir, crude futures trader at Tyche Capital Advisors in Long Island, New York.

“At least for tax consequence reasons, refiners always ramp up runs at the year-end, and there’s a draw. This is a first for me.”

Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland, called it “just another bearish data point in a series of many that have dominated 2015 and will likely continue to do so heading into 2016”.

Crude prices, however, did not lose much after their initial decline on the EIA data. Some attributed that to thin, holiday-season volumes. WTI’s front-month contract traded just over 240 million barrels on Wednesday, about half of levels seen two weeks ago, Reuters data showed.

Crude prices began falling on Tuesday itself, retracing gains in post-settlement trade after preliminary inventory data from industry group American Petroleum Institute showed a build. EIA’s data on Wednesday confirmed that.

Brent, the global oil benchmark, settled down $1.33, or 3.5 per cent, at $36.46 a barrel. Its session low was $36.35, less than 40 cents from a 11-year bottom struck last week.

WTI finished the session down $1.27, or 3.4 per cent, at $36.60.

Crude prices have plunged two-thirds since mid-2014 as soaring output from the Organization of the Petroleum Exporting Countries, Russia and the United States created a global surplus of between half a million and 2 million barrels per day.

Ali al-Naimi, oil minister of OPEC leader Saudi Arabia, said the kingdom will not limit production, the Wall Street Journal reported.

China’s energy consumption in 2015 grew at its lowest since 1998, the official news agency Xinhua said, adding to the market’s downside.

Source: The Globe and Mail