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A gas station sits empty during a weather-related travel ban as snow falls on the Brooklyn borough of New York, Jan. 27, 2015.SAM HODGSON/The New York Times

Oil tumbled to the lowest in almost six years after a government report showed that U.S. crude inventories advanced to the highest level in data going back more than three decades.

Crude supplies rose 8.87 million barrels to 406.7 million, the most in records compiled since August 1982 by the Energy Information Administration. Production advanced to the highest level in more than three decades, EIA data show. Price declines accelerated after the Federal Reserve maintained its pledge to be "patient" on raising interest rates and boosted its assessment of the economy and labor market.

Oil extended last year's drop of almost 50 per cent as the EIA projects the U.S. will produce 9.31 million barrels a day in 2015, the most since 1972 while the Organization of Petroleum Exporting Countries resisted calls to cut supply. Saudi Arabian Oil Co. Chief Executive Officer Khalid Al-Falih reiterated government policy that the kingdom won't balance global crude markets "singlehandedly."

"You aren't going to see any abatement in either production or inventories for at least three to six months," Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said by phone. "There's no impetus for prices to go higher. You don't just turn the spigot and stop the flow."

Market Movement

West Texas Intermediate for March delivery fell $1.78, or 3.9 per cent, to $44.45 a barrel on the New York Mercantile Exchange. It was the lowest settlement since March 11, 2009. Prices earlier touched $44.08, the lowest intraday price since April 21, 2009. The volume of all futures traded was 15 per cent below the 100-day average at 3:02 p.m.

Brent for March settlement slipped $1.13, or 2.3 per cent, to end the session at $48.47 a barrel on the London-based ICE Futures Europe exchange. Volume was 17 per cent above the 100-day average. The European benchmark grade closed at a $4.02 premium to WTI, the most since Dec. 31.

Stockpiles were projected to climb 3.85 million barrels in the week ended Jan. 23, according to the median of 10 analyst estimates in a Bloomberg survey. Supplies in the Midwest, known as Padd 2, advanced 1.08 million barrels to a record 120 million last week. Inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, rose 2.09 million barrels to 38.9 million, the most since January 2014.

Shale Boom

Crude output increased 27,000 barrels a day to 9.21 million last week, said the EIA, the Energy Department's statistical arm. It's the highest level in weekly estimates that started in January 1983. The combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central U.S.

"The bottom line is we're practically choking on the stuff," Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4-billion, said by phone. "There's just a lot of oil being pumped. Even with refinery runs up strongly we saw a large inventory build."

Refineries operated at 88 percent of their capacity, up from 85.5 per cent the previous week. U.S. refineries typically schedule planned work for late winter, when they move from maximizing distillate output to producing gasoline.

"It's been many, many years since we've had inventories at these levels," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. "This isn't a one-off build. We're looking forward to several months of builds as U.S. refineries perform seasonal maintenance work."

Gasoline supplies fell 2.59 million barrels to 238.3 million. Inventories of distillate fuel, a category that includes heating oil and diesel, declined 3.89 million to 132.7 million.

'Pretty Shocking'

Consumption of gasoline averaged 8.89 million barrels a day over the four weeks ended Jan. 23, up 7.9 per cent from a year earlier, EIA data show.

Gasoline futures for February delivery slipped 0.51 cent, or 0.4 percent, to close at $1.345 a gallon. February ultra-low sulfur diesel decreased 3.1 cents, or 1.9 per cent, to $1.6318.

Regular gasoline at U.S. pumps dropped to the lowest level since April 2009 on Jan. 25. The average retail price was unchanged at $2.038 a gallon on Tuesday, according to Heathrow, Florida-based AAA, the nation's biggest motoring group.

"The yearly changes in gasoline demand are pretty shocking," O'Grady said. "This is signaling that there may be some demand response to the huge decline in prices."

Maintain Policy

Saudi Arabia will maintain its current policy, refusing to pare output and bolster prices alone, even as oil falls to levels "too low for everybody," Saudi Aramco's Al-Falih said at a conference in Riyadh. The world's biggest oil exporter led OPEC's Nov. 27 decision to maintain output levels.

"Supply and demand and the rules of economics will govern. It will take time for the current glut to be removed," Al-Falih said. "Saudi Arabia will not singlehandedly balance the market in a downturn."

Barclays Plc cut its 2015 forecast for Brent to $44 a barrel from $72 as U.S. production looks set to withstand the collapse in prices. Brent and WTI will continue to drop for the next few months, slipping below $40 a barrel, Barclays analysts Miswin Mahesh and Michael Cohen said in a report.

"It's challenging to imagine a return to $90 or $100 anytime soon," Dan Heckman, a senior fixed-income strategist in Kansas City at U.S. Bank Wealth Management, which oversees $126 billion. "We're probably bottoming out now and will continue to through the end of the year. I don't see a recovery until the third or fourth quarter of 2016."

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