Crude Oil Drops Before U.S. Report Expected to Show Supply Gain

By Rachel Graham

Oct. 21 (Bloomberg) -- Crude oil fell for a second day before a U.S. government report expected to show crude inventories rose last week.

Crude stocks rose 1.5 million barrels in the week ended Oct. 16 from 337.8 million the prior week, according to a survey of 15 analysts before the Department of Energy report, released later today. U.S. stocks are currently about 10 percent above last year’s level.

“We’ve come up quite quickly in the past couple of weeks,” Frank Schallenberger, head of commodities research at Landesbank Baden-Wuerttemberg, said by phone from Stuttgart. “The U.S. report should give the market new direction,”

Crude oil for December delivery fell as much as 90 cents, or 1.1 percent, to $78.22 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $78.36 a barrel at 9:51 a.m. London time.

Crude prices have gained 11 percent this month, tracking rising global equity markets and a weakening dollar.

Futures traded at over $80 a barrel yesterday for the first time in over a year as the dollar index, which measures the U.S. currency against six currencies, fell to its lowest since August 2008. Some investors buy dollar-priced commodities to hedge against a weaker U.S. currency.

Brent crude oil for December settlement declined as much as 69 cents, or 0.9 percent, to $76.55 a barrel on the London-based ICE Futures Europe exchange.

A report from the industry-funded American Petroleum Institute yesterday showed crude inventories in the U.S. increased 3.85 million barrels last week.

The Department of Energy report may show gasoline inventories fell 850,000 barrels from 209.2 million the week before, the survey showed.

Supplies of distillate fuel, a category that includes heating oil and diesel, declined 1 million barrels from 170.7 million the prior week, according to the survey. Stockpiles in the week ended Oct. 2 were at the highest level since January 1983.

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

To contact the reporters on this story: Rachel Graham in London rgraham13@bloomberg.net