Oil Falls Below $33 a Barrel on Rising Supply, Contract Expiry

By Mark Shenk

Jan. 20 (Bloomberg) -- Crude oil fell below $33 a barrel in New York as declining demand bolstered U.S. supplies and traders sold positions on the last day of the February contract.

Inventories at Cushing, Oklahoma, where oil for New York futures is stored, climbed to 33 million barrels on Jan. 9, the highest since records started four years ago, according to the Energy Department. Traders have to sell February futures today or accept the barrels at a time of falling demand.

“There’s a continuing focus on oversupply, especially at Cushing,” said Tom Bentz, senior energy analyst at BNP Paribas in New York.

Crude oil for February delivery fell 93 cents, or 2.6 percent, to $35.58 a barrel at 9:59 a.m. on the New York Mercantile Exchange. Futures touched $32.70, the lowest since Dec. 19. Prices are down 61 percent from a year ago.

Floor trading was closed for the Martin Luther King Jr. holiday yesterday. Electronic trades will be booked today for settlement. The more-active March contract dropped $1.10, or 2.6 percent, to $41.47 a barrel.

Rising U.S. stockpiles and forecasts from the International Energy Agency and OPEC for declining world demand contributed to an 11 percent drop in Nymex crude oil last week. Prices are down 20 percent this year, after tumbling 54 percent in 2008.

Russian Gas

Russia and Ukraine signed 10-year natural-gas contracts, ending a dispute that squeezed supplies to the European Union for almost two weeks. Shipments resumed today.

United Nations Secretary General Ban Ki-Moon visited the Gaza Strip today as Israel pulled out troops following an end to rocket attacks by the militant Islamist Hamas group.

“All of the props that were supporting the market are being taken down,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. “The Russia-Ukraine gas dispute has been settled, although I don’t know when there will be deliveries in Europe, and Israeli troops are leaving Gaza.”

The dollar climbed as high as $1.2911 against the euro, the strongest since Dec. 10, and most recently traded at $1.2939. Gains in the U.S. currency diminish the appeal of dollar-priced commodities used to hedge against inflation.

“The rallying dollar and weak stock markets don’t create an attractive market for oil,” said Michael Fitzpatrick, vice president for energy at MF Global Ltd. in New York.

Brent crude oil for March settlement declined 43 cents, or 1 percent, to $44.07 a barrel on London’s ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.