Fuel hoses sit attached to a delivery truck as unleaded and diesel fuel is pumped into underground storage tanks beneath the forecourt at a JET petrol station, operated by Phillips 66, in Portsmouth, U.K., on Friday, March 6, 2015.Simon Dawson/Bloomberg
U.S. oil futures slumped to the lowest level since March 2009 on speculation that record supply may start to strain the country's storage capacity.
U.S. crude inventories have increased to the highest level since at least 1982, according to the Energy Information Administration. Stockpiles at Cushing, Oklahoma, the delivery point for New York futures, reached about 70 per cent of working storage capacity.
Prices are reversing a rebound, which had sent West Texas Intermediate crude up near $55 a barrel in February, as inventories continue to rise and the dollar strengthens. The International Energy Agency raised its U.S. production forecast as drilling-rig cuts fail to slow output growth. Speculators cut bullish bets on WTI to the lowest level in more than two years, U.S. Commodity Futures Trading Commission data show.
"We'll see more inventory builds in the next few weeks," said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. "Production is going to probably still increase here in the U.S. despite rig-count cuts. The dollar is adding pressure. We could test $40 soon."
West Texas Intermediate for April delivery dropped 54 cents, or 1.2 per cent, to $44.30 a barrel at 9:04 a.m. on the New York Mercantile Exchange after touching $43.57. The contract fell $2.21 to $44.84 on Friday, capping a 9.6 per cent loss for the week, the most since December. The volume of all futures traded was about 1 per cent below the 100-day average for the time of day.
U.S. Supply Brent for April settlement, which expires today, slid 65 cents, or 1.2 per cent, to $54.02 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $9.99 to WTI on the ICE. The more active Brent contract for May was 62 cents lower at $54.39.
OPEC is pumping about 1.9 million barrels a day more than the level it estimates will be needed to balance the global market in the second quarter, according to its monthly report.
U.S. crude stockpiles increased for the nine weeks through March 6 to 448.9 million barrels, the highest in EIA records dating back to August 1982. The nation pumped 9.37 million barrels a day, the fastest pace in weekly estimates compiled by the Energy Department's statistical arm since 1983.
Stockpiles at Cushing rose by 2.32 million barrels to 51.5 million, the highest level since January 2013. Cushing has a working capacity of 70.8 million barrels, according to the EIA.
Rigs Cut Rigs targeting oil in the U.S. shrank by 56 to 866 last week, the fewest since March 2011, said Baker Hughes Inc. Companies have idled 709 machines since the start of December, a 45 per cent decline, according to the services company.
U.S. oil production will expand this year by about 750,000 barrels a day to 12.56 million a day, the IEA said in a report on Friday. That's up from an estimate of 12.41 million in last month's report. The IEA's forecast includes natural gas liquids and condensate.
Low oil prices are hurting all producers including Saudi Arabia, which "has never been in a price war with anybody," according to Ibrahim Al-Muhanna, an adviser to Saudi Oil Minister Ali al-Naimi.
Saudi Arabia led the Organization of Petroleum Exporting Countries in resisting calls to cut output at a meeting in November. The 12-member group, which supplies about 40 per cent of the world's oil, is scheduled to gather on June 5.
Hedge funds and other money managers reduced their net-long position on WTI by 2.5 per cent in the seven days ended March 10 to 160,278, according to the CFTC.