Oil Tumbles 12 Percent

Oil futures tumbled 12 percent, the most in more than seven years, after a U.S. government report showed bigger-than-expected increases in supplies of crude oil, gasoline and distillate fuel as consumption dropped.
TradingEconomics.com, Bloomberg 1/7/2009 1:18:27 PM

Inventories of crude oil rose 6.68 million barrels to 325.4 million barrels last week, the highest since May, the Energy Department said today in a weekly report. Supplies were forecast to increase by 800,000 barrels, according to the median of forecasts by 14 analysts in a Bloomberg News survey.

Crude oil for February delivery fell $5.95 to $42.63 a barrel at 2:46 p.m. on the New York Mercantile Exchange, the lowest settlement since Dec. 30. Today’s decline was the biggest since Sept. 24, 2001. Futures on the exchange are down 55 percent from a year ago.

Inventories at Cushing, Oklahoma, where oil that’s traded on Nymex is stored, climbed 14 percent to 32.2 million barrels last week, the highest since at least April 2004, when the department began keeping track of supplies there.

The price of oil for delivery in February 2010 is 41 percent more than for the current month, increasing the opportunity for traders to profit. This structure, in which the subsequent month’s price is higher than the one before it, is known as contango. Contango trading encourages companies to increase stockpiles if they have available storage.

Volume in electronic trading on the exchange was 535,890 contracts as of 3:05 p.m. in New York. Volume totaled 649,999 contracts yesterday, up 38 percent from the average over the past 3 months. Open interest yesterday was 1.22 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.

Gasoline inventories rose 3.33 million barrels to 211.4 million barrels, the department said. Supplies were forecast to increase by 1 million barrels. Distillate supplies, which include heating oil and diesel, climbed 1.79 million barrels to 137.8 million barrels. A gain of 1.1 million barrels was forecast.

Gasoline futures for February delivery dropped 11.28 cents, or 9.5 percent, to settle at $1.0764 a gallon in New York. Heating oil for February delivery fell 8.32 cents, or 5.1 percent, to end the session at $1.5431 a gallon.

Regular gasoline at the pump, averaged nationwide, rose 3.9 cents to $1.727 a gallon, AAA, the largest U.S. motorist organization, said on its Web site today. It was the biggest one- day increase since September. Prices have dropped 58 percent from the record $4.114 a gallon reached on July 17.

U.S. fuel consumption during the four weeks ended Jan. 2 averaged 20.1 million barrels a day, down 2.9 percent from a year earlier, the Energy Department report showed.

Imports of crude oil increased 13 percent to 10.5 million barrels a day last week, the biggest one-week gain since the week ended Oct. 3, when the Gulf Coast was recovering from hurricanes Gustav and Ike.

Refineries operated at 84.6 percent of capacity last week, up 2.1 percentage points from the week before, the report showed. Analysts forecast that there would be no change in utilization.

Yesterday, crude reached a five-week high on the conflict between Israel and Hamas in the Gaza Strip, Russia’s gas dispute with Ukraine, and signs that OPEC members are enacting supply cuts. It later fell as manufacturing data indicated the U.S. recession is deepening.

Brent crude oil for February settlement declined $4.67, or 9.2 percent, to settle at $45.86 a barrel on London’s ICE Futures Europe exchange.

Saudi Foreign Minister Prince Saud al-Faisal said oil isn’t a weapon” to end fighting in the Middle East. Prince al- Faisal, speaking at a press conference in New York, said oil can’t reverse a conflict,” when asked about an Iranian call for Arab states to stop producing as a means of putting pressure on countries backing Israel.

Oil surged in 1974, helping spur a recession in the developed world, after an oil embargo that followed the Arab-Israeli war in October 1973.

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