Oct. 17, 2013, 3:19 p.m. EDT
Oil falls closer to $100 as U.S. supplies jump
Prices drop despite debt deal as demand outlook remains uncertain
By Myra P. Saefong and Victor Reklaitis, MarketWatch
SAN FRANCISCO (MarketWatch) — Oil futures fell toward $100 a barrel on Thursday, settling at their lowest since early July, after a trade group reported that U.S. supplies jumped much more than expected last week, and as traders bet that the U.S. economy and energy demand took a hit from the U.S. government’s shutdown.
Crude for November delivery (NMN:CLX3) dropped $1.62, or 1.6%, to settle at $100.67 a barrel on the New York Mercantile Exchange after tapping a low of $100.03 during the session. Prices settle at the lowest for a most-active contract since July 2.
“We tested $100 a barrel today and we feel we will break those levels in the days and weeks to come, basically on the fundamentals (increasing inventories) and the economic impact the shutdown had on the U.S. economy,” said Tariq Zahir, managing member at Tyche Capital Advisors.
On ICE Futures, December Brent crude (IET:UK:LCOZ3) fell $1.48, or 1.3%, to $109.11 a barrel.
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Oil falls toward $100 level as U.S. supplies climb more than expected last week.
“It’s a bit like that old saying about selling on the bullets — traders seems to have decided to flee riskier assets on confirmation of the deal,” said Matthew Parry, senior oil analyst at the International Energy Agency in Paris.
Congress voted Wednesday to reopen the government and raise the nation’s borrowing limit.
Analysts at Commerzbank wrote in a note on Thursday that oil has pulled back now that the deal is done in Washington because traders have decided to “buy the rumor, sell the fact.” That type of reaction, also called “sell the news,” looked to be the case for U.S. stocks as well.
But some fears over the economic outlook have been triggered by the news that a Chinese ratings agency is lowering its U.S. rating, Parry said, adding that those fears are likely overdone. Rating agency Dagong on Thursday reportedly downgraded the U.S. to A- from A. Read about what oil traders may focus on next.
Supplies jump
A jump in U.S. supplies also weighed on oil.
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Late Wednesday, the American Petroleum Institute report showed that U.S. crude stocks grew by 5.9 million barrels for the week ended Oct. 11. Analysts polled by Platts expected to see an increase of 2.25 million barrels.
The API also reported that gasoline stockpiles fell 2.2 million barrels while distillate supplies fell by 1.3 million barrels. Analysts expected gasoline supplies to be down 400,000 barrels and looked for a decline of 1.3 million barrels in distillates.
On Nymex, November gasoline (NMN:RBX3) closed at $2.65 a gallon, down over 5 cents, or 2%, and November heating oil (NMN:HOX3) lost 5 cents, or 1.6%, to $2.99 a gallon.
Similar supply data from the Energy Information Administration wasn’t released Thursday because of the shutdown and neither was the weekly natural-gas storage report. Nevertheless, analysts polled by Platts were expecting to see an increase of 75 billion cubic feet to 79 billion cubic feet in last week’s natural-gas supplies.
November natural gas (NMN:NGX13) settled at $3.76 per million British thermal units, down a penny, or 0.3%, on Nymex.
“Schedules for the resumption of the reports will be announced as they become available,” EIA spokesman Jonathan Cogan told MarketWatch, in an email. The latest petroleum status report was due for release Thursday, a day late because of the Columbus Day holiday.
James Williams, an energy economist at WTRG Economics, said he estimates, based on the EIA’s normal processing schedule, that the report may be released Monday. But there’s also a possibility the data will be in a combined report Wednesday, when the next report was due for release, he said.
Economic news on Thursday wasn’t very supportive for oil’s demand outlook. The latest report on weekly jobless claims showed a decline, but not by as much as analysts expected and jobless claims remained elevated because of processing delays in California and layoffs related to the government shutdown.
Other data showed that the Philadelphia Fed’s manufacturing index dropped to a reading of 19.8 in October from 22.3 in September, but topped a MarketWatch-compiled economist forecast of 15.0.
On Wednesday, oil prices rose 1.1% to $102.29 as lawmakers announced a deal to reopen the government and temporarily lift the U.S. debt limit. The Senate and House passed the bill late Wednesday, and President Barack Obama signed it into law early Thursday, shortly after midnight.
Recent talks between world powers and Iran over the country’s nuclear program has also weighed on prices for oil as worries over supplies in the Middle East eased. The talks resume in November.
Oil’s move Thursday came basically on the back of “higher supplies, uncertainty about the government and chances for a real recovery, and the possibility that Iran might actually cut a deal on the nuclear issue,” said WTRG’s Williams. “If Iranian sanctions are lifted, we would soon have another million barrels per day on the market.”
