Crude Oil Falls a Third Day as U.S. Inventories May Have Gained

By Christian Schmollinger

Feb. 24 (Bloomberg) -- Crude oil fell for a third day on speculation that U.S. stockpiles increased for the 19th week in 22 as the global recession saps fuel demand.

Crude-oil inventories probably gained 1 million barrels in the week ended Feb. 20 from 350.6 million the week before, a Bloomberg survey showed. Supplies fell 138,000 barrels in the week ending Feb. 13. The MSCI Asia-Pacific Index fell 2.5 percent today to the lowest since August 2003, increasing concern that the worldwide economic contraction is deepening.

“If we do see a hefty build, that would suggest that last week’s draw wasn’t an indication that we’re getting close to a supply-demand balance,” said Toby Hassall, an analyst with Commodity Warrants Australia in Sydney. “Looking at the equity markets as a gauge for the demand outlook, it doesn’t look as if there is any sign of a recovery soon.”

Crude oil for April delivery fell as much as 79 cents, or 2.1 percent, to $37.65 a barrel in electronic trading on the New York Mercantile Exchange. It was at $38.02 a barrel at 3:28 p.m. Singapore time.

The contract dropped $1.59 yesterday to settle at $38.44 a barrel. Prices are down 62 percent in the past year.

The S&P 500 slumped 3.5 percent yesterday to 743.33, its lowest close since April 1997. The six-day losing streak in the U.S. stock benchmark ranks as its longest since October. The Dow Jones Industrial Average tumbled 250.89 points, or 3.4 percent, to 7,114.78, its lowest since May 1997.

Crude Imports

“Equities are something of the main driver as far as sentiment is concerned,” said Tetsu Emori, a commodity fund manager at Astmax Ltd. in Tokyo. “Imports are becoming a key factor now because refinery runs are falling because of maintenance and low demand.”

U.S. crude oil inventories dropped in the week ending Feb. 13 as the country’s imports fell 8.9 percent to 8.7 million barrels a day, the lowest since September.

Analysts were split over whether gasoline stockpiles rose or fell last week. Supplies were probably unchanged at 218.7 million, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably fell 1.5 million barrels from 140.8 million.

The Energy Department is scheduled to release its weekly report tomorrow at 10:30 a.m. in Washington.

Crude oil supplies at Cushing, Oklahoma, where New York- traded West Texas Intermediate crude is delivered, declined 52,000 barrels to 34.9 million barrels in the week ended Feb. 13, Energy Department data shows. Inventories in the week ended Feb. 6 were the highest since at least April 2004, when the department began keeping records for the location.

Brent Premium

The high inventories at Cushing have depressed the West Texas price so that Brent crude oil traded in London is at a premium to the U.S. grade. Brent is selling more than $2 a barrel higher than WTI.

“People are looking at the high inventory levels now and not really paying attention to the quality premium that normally exists for WTI,” said Astmax’s Emori.

Brent crude oil for April settlement fell as much as 56 cents, or 1.4 percent, to $40.43 a barrel on London’s ICE Futures Europe exchange. It was at $40.71 a barrel at 3:22 p.m. Singapore time. The contract yesterday declined 90 cents, or 2.1 percent, to end the session at $40.99 a barrel.

OPEC Cuts

The 11 OPEC members with quotas, all except Iraq, reduced output by 3.8 percent to 25.3 million barrels a day in February, according to consultant PetroLogistics Ltd. of Geneva.

Supply from OPEC will average 25.3 million barrels a day in February, down from 26.3 million barrels in January, Conrad Gerber, founder of PetroLogistics, said in an interview yesterday. Members have a quota of 24.845 million barrels a day.

Iran, Venezuela and Iraq said last week that OPEC is prepared to cut production again when it meets on March 15. The group agreed Dec. 17 on output constraints that would reduce supplies in January by 2.2 million barrels a day from December levels. That followed pledges to remove 2 million barrels a day in the fourth quarter of last year.

The OPEC cuts aren’t raising oil prices “because people don’t see any sign of the economic recovery,” said Astmax’s Emori. “All of the economic data say the situation is still gloomy and it’s difficult for anyone to see a better demand picture for the future.”

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