Oil Falls for a Second Day After Gain in U.S. Crude Stockpiles

By Christian Schmollinger

Jan. 15 (Bloomberg) -- Crude oil fell for a second day in New York after a government report yesterday showed slowing demand sent U.S. stockpiles soaring to a 16-month high.

Inventories of crude increased 1.14 million barrels to 326.6 million last week, the highest since Aug. 31, 2007, the U.S. Energy Department said. Gasoline and distillate fuel supplies also rose. Fuel demand fell 6 percent, the largest one- week decline in almost five years, as the Federal Reserve reported the U.S. economy weakened further in the past month.

“The data continues to show that the overall demand for oil is very weak,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “The inventory build shouldn’t be surprising given the weakness in consumption.”

Crude oil for February delivery fell as much as $1.15, or 3.1 percent, to $36.13 a barrel in electronic trading on the New York Mercantile Exchange. It was at $36.81 a barrel at 4:02 p.m. Singapore time. Yesterday, futures dropped 1.3 percent to $37.28 a barrel in New York, the lowest settlement since Dec. 24. Oil has declined 60 percent in the past year.

U.S. inventories of crude oil were forecast to rise 2.5 million barrels in the week ended Jan. 9, according to the median of 15 analyst estimates in a Bloomberg News survey. The increase last week left stockpiles 10 percent higher than the five-year average for the period, the department said.

“The stock levels around the world are at 84 days of consumption, which is a record high,” said Jan de Laat, global head of energy, trade and commodity finance at Rabobank International in an interview with Bloomberg Television. “In the short term that isn’t going to change, the demand isn’t there and the economy is still from the financial crisis.”

Contango Increases

Inventories at Cushing, Oklahoma, where oil traded on Nymex is stored, climbed 2.5 percent to 33 million barrels last week, the highest since at least April 2004, when the department began keeping records for the location.

The price of oil for delivery in February 2010 is 58 percent more than for the front-month contract, allowing traders to profit if they have the ability to store crude. February 2009 crude is trading at a $7.14 discount to March, from $3.88 on Jan. 5. This structure, in which the subsequent month’s price is higher than the one before it, is known as contango.

“The high levels of inventories are depressing the near- term Nymex price,” said Commonwealth Bank’s Moore. “As well, we have these concerns about the international economy.”

Frontline Ltd., the world’s biggest owner of supertankers, said about 80 million barrels of crude oil are being stored in tankers, the most in 20 years, as traders seek to take advantage of higher prices later in the year.

Fuel Stockpiles

Brent crude oil for February settlement fell as much as 78 cents, or 1.7 percent, to $44.30 a barrel on London’s ICE Futures Europe exchange. The contract expires today.

The more-active March contract dropped as much as 98 cents, or 2.1 percent, to $46.64 a barrel.

The price of Brent oil in London for delivery in February is more than $8 a barrel higher than that for West Texas Intermediate oil, the grade that’s traded in New York, during the same month.

Gasoline stockpiles rose 2.07 million barrels to 213.5 million barrels, higher than the 1.85 million-barrel increase forecast in the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, surged 6.35 million barrels to 144.2 million barrels, the biggest gain since January 2004.

Economy Weakens

Gasoline futures for February delivery fell 1.67 cents to $1.1510 a gallon in New York. Heating oil for February was at $1.4423 a gallon, down 2.08 cents, after dropping 3.4 percent to end the session at $1.4631 a gallon yesterday.

“Signs of a collapse in diesel demand, mirroring the plunge in international trade, container traffic at U.S. port, U.S. trucking demand and industrial activity, is undermining heating oil prices despite frigid winter temperatures on the East Coast,” said Antoine Halff, head of energy research at Newedge USA LLC in a report yesterday.

Sales at U.S. retailers fell more than twice as much as forecast in December as job losses and the choking-off of credit led Americans to cut back on everything from eating out to car purchases. The 2.7 percent decrease, the sixth consecutive drop, extended the longest series of declines in records going back to 1992, the Commerce Department said yesterday in Washington.

The U.S. economy weakened across almost all regions, hurt by a lack of credit and declines in retail sales, the Federal Reserve said yesterday in its regional business survey.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.