Weekly Market Outlook

Oil Falls to Three-Month Low After Surprise U.S. Stockpile Gain

Oil fell to a three-month low, edging closer to a bear market after U.S. crude supplies unexpectedly rose from what was already the highest seasonal level in at least two decades.

Futures dropped as much as 1.5 percent in New York. Crude inventories climbed by 1.67 million barrels last week as output rose, the Energy Information Administration said Wednesday. A Bloomberg survey had forecast a 2 million-barrel decline. Gasoline stockpiles grew in the midst of the U.S. summer driving season, when demand for the fuel typically peaks.

“We’re going to test support around $40,” said Kyle Cooper, director of research at IAF Advisors and Ion Energy in Houston. “Crude inventories are building. There’s still more supply than demand.”

Oil is approaching the 20 percent drop from early June that would characterize a bear market. The recovery driven by supply disruptions that saw prices almost double from a 12-year low reached in February has petered out amid renewed concerns about the strength of demand. Oil producers including BP Plc, Royal Dutch Shell Plc and Total SA reported sharp declines in second-quarter earnings as lower crude prices continued to take their toll.

West Texas Intermediate for September delivery fell 54 cents, or 1.3 percent, to $41.38 a barrel at 11:05 a.m. on the New York Mercantile Exchange. The contract touched $41.29, the lowest since April 20. Total volume traded was 27 percent below the 100-day average.

American Stockpiles

Brent for September settlement, which expires Friday, fell 57 cents, or 1.3 percent, to $42.90 a barrel on the London-based ICE Futures Europe exchange. Prices touched $42.81, the lowest since April 20. The global benchmark traded at a $1.52 premium to WTI.

U.S. crude stockpiles increased to 521.1 million barrels, the first gain in 10 weeks, the EIA reported Wednesday. Output climbed for a third week to 8.52 million barrels a day. Inventories at Cushing, Oklahoma, the delivery point for WTI and the nation’s biggest oil-storage hub, rose to 65.2 million barrels.

Oil-market news:

  • Shell reported the lowest quarterly earnings in 11 years and missed estimates by more than $1 billion due to a combination of lower energy prices, weaker refining margins and production halts.
  • The U.S. dollar is the primary driver of the drop in crude prices because the oil market is nearly balanced in the short term, Goldman Sachs Group Inc. said in a report.