Oil prices fall again after U.S. inventory climbs
A surprise increase in U.S. inventories helps send the price of crude below $41 per barrel for the first time in six years
U.S. crude ended trading below $41 per barrel for the first time in six years, after a government report showed the surplus of international oil filling storage tanks at home.
U.S. crude ended daily trading below $41 per barrel for the first time in six years on Wednesday, after a government report showed more of the global oil flood is reaching storage tanks at home.
The U.S. Energy Information Administration sparked the rout when it reported a surprise increase in U.S. inventories, driven by oil imports that ballooned to a four-month high. The Energy Information Administration said U.S. oil stocks grew by 2.6 million barrels in the week ending Wednesday.
Citi Research warned that crude oil may be headed into the low $30s per barrel, and analysts said that anemic international economic growth could prolong low prices.
The latest clouds gathered over the industry as oil and gas property traders called landmen convened in Houston for a semiannual swap-meet, where they’ll haggle for properties cheapened by low oil prices.
U.S. benchmark West Texas Intermediate crude fell by $1.82 to $40.80 per barrel Wednesday, its lowest closing price since 2009. Brent, the international standard, fell $1.65 to $47.16 per barrel in European trading.
U.S. businesses imported 8 million barrels per day of crude oil during the week, the highest since April.
“Jumping back over 8 million barrels a day is a sign that global supply is still very high,” Kyle Cooper of Houston consulting group IAF Advisors said. “It’s indicative of a very, very well supplied market.”
Analysts view inventories as a proxy for oil’s supply and
demand — surplus crude fills tanks, shortfalls drain them. Refiners have ramped up production this summer, to take advantage of lower prices for their raw material while meeting gasoline demand during summer vacation season.
The refinery activity may have factored in traders’ expectations for a week-over-week inventory drop. According to an average of 10 forecasts compiled by Bloomberg, market watchers had predicted an inventory draw of 354,000 barrels. The American Petroleum Institute strengthened confidence in those forecasts Tuesday when it estimated a 2.3-million-barrel decrease in crude oil stores. The trade group’s weekly projections are often a bellwether for the government’s more definitive report the next day.
But an ongoing shutdown of BP’s refinery in Whiting, Ind. — the largest oil processing plant in the Midwest — has limited the amount of oil soaked up by the refining sector.
Leaking pipes knocked out three of the plant’s crude distillation units Aug. 8, reducing its operating capacity by more than half, according to GasBuddy.com and the U.S. Energy Information Administration. The Energy Department agency says it may take BP a month to repair the problem. BP said in a statement Wednesday that as repair work continues, it has tried to address the shortfall by snapping up additional fuel supplies for customers.
Andy Lipow, of Houston consulting group Lipow Oil Associates, said U.S. production is beginning to decline in response to lower prices and a resulting drop in drilling, but not enough to balance supply and demand.
“The fact remains the world is oversupplied with record crude production from Saudi Arabia and Iraq, and is anticipating the return of Iranian crude,” he said.
An agreement limiting Iran’s nuclear activities in exchange for a lifting of economic sanctions would revive its crippled oil sales.
On the global markets, traders remain anxious about slowing international growth that has held down prices since early this summer.
“The singular surprise this summer has been the emergence of global growth fears driven by the deflationary headwinds in China and concerns about the growth there,” said Bill Herbert of energy investment bank Simmons & Company International.
And analysts at Citi Research suggested Wednesday that prices could fall far enough to send U.S. oil below even the $33.98-perbarrel low during the worst of the 2009 financial crisis.
There’s a “conceivable reality” U.S. oil prices may plummet to an 11-year low of $33 a barrel or less this year, the research groups said in a report.
Those low numbers have dealt the oil and gas industry a harsh 2015.
As oil prices fell Wednesday, industry players converged on Houston’s George R. Brown Convention Center for this summer’s North American Prospect Expo, a semiannual event where oil executives come to do land deals. Crude’s price slide has made their properties less valuable.
“Feels like a punch in the nose,” said Wil Harris, senior vice president at oil adviser Asset Risk Management, which helps small producers lock in prices for their future oil output.
Cheap oil is expected to force more U.S. producers, especially those with high debt, to sell off land to shore up their balance sheets. The best land, though, probably won’t be up for sale in deals for individual properties. To get the top assets, major oil companies and private equity firms will have to buy producers outright, said Matthew Meagher, president of oil consulting firm Meagher Energy Advisors in Colorado.
“I think we are in a lowprice environment for longer than most people want to hear,” Meagher said.