Oil Closes at Five-Week Low After Surprise Gain in U.S. Supplies

(Bloomberg) -- Oil closed below $46 a barrel for a second day in New York as a surprise increase in U.S. stockpiles raised concerns the supply glut isn't abating.

Futures slid 0.2 percent, extending Wednesday's plunge to a five-week low after Energy Information Administration data showed total U.S. inventories of crude and product jumped the most since 2008 last week. In a sign investors are less confident to buy into the oil market, the discount on shorter-term futures known as contango widened.

“Despite the fact that crude stocks have been declining for several weeks now, every time we get one of these builds, it shakes the market's confidence in the rebalancing process,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by telephone. “Right now, the market has very little to go on in terms of bullish catalysts.”

Oil has traded below $50 a barrel amid speculation that increased U.S. supplies will counter output curbs by the Organization of Petroleum Exporting Countries and its partners, including non-member Russia. UBS Group AG cut its 2017-2019 oil price forecasts, citing that prices are caught “between U.S. exuberance and OPEC restraint.”

West Texas Intermediate for July delivery dropped 8 cents to settle at $45.64 a barrel on the New York Mercantile Exchange after losing $2.47 to $45.72 on Wednesday. Total volume traded was about 62 percent above the 100-day average.

The contango between December 2017 WTI and December 2018 widened to a discount of $1.04, the largest since November.

Brent for August settlement dropped 20 cents to end the session at $47.86 a barrel on the London-based ICE Futures Europe exchange, the lowest level since November. Brent traded at a $1.97 premium to WTI for the same month. 

Short-Covering

Slight price increases during Thursday's volatile session may be explained by short-covering, according to Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. That's when short-sellers who bet on a slump see an opportunity to buy cheap in order to return securities they borrowed and sold when prices were higher.

“It's a pretty grim situation out there,” Yawger said. “If you're a professional trader, you live for these kind of moments.”

See also: Crude Oil's Biggest Tumble Since March Shown in Three Charts

U.S. crude and gasoline inventories each increased by about 3.3 million barrels last week, according to the Department of Energy's EIA. The build in crude stockpiles was the first since March.

While Saudi Arabia appears to be making good on its pledge to ship less crude to the U.S., with American crude imports from the kingdom declining 55 percent last week to the lowest since January 2015, shipments from Iraq surged, the EIA data showed.

“This might be one of the most disappointing and demoralizing DOE releases of this analyst's career – back to 1990,” Paul Sankey, senior oil and gas analyst at Wolfe Research LLC, said in a note to clients. “Make no bones about it, this was an unequivocally terrible set of data for OPEC and oil bulls.”

Oil-market news:

• Libya's biggest oil field shut because of a protest by workers, stalling a revival in the politically divided country's crude output.
• Equatorial Guinea, OPEC's newest member, called on fellow African producers to band together to protect the value of their oil resources and join the group.

--With assistance from Ben Sharples Grant Smith and Joe Carroll

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Carlos Caminada, Mike Jeffers