Oil’s biggest rally since 2009 stalls as U.S. supply glut grows

2/4/2015
MOMING ZHOU
NEW YORK (Bloomberg) -- Oil plunged the most since November, ending the biggest rally in six years, as a U.S. supply glut worsened.
The U.S. benchmark slumped as much as 9.4%. Crude stockpiles climbed 6.33 MMbbl in the week ended Jan. 30 to the highest level since Energy Information Administration weekly data started in 1982. Analysts surveyed by Bloomberg had expected a gain of 3.25 MMbbl. An index of oil price volatility jumped to the highest since 2011.

Today’s slide followed a four-day rebound from the lowest level in almost six years as companies including BP Plc, Royal Dutch Shell Plc and Chevron Corp. reduced investments in response to the market’s collapse. Brent closed more than 20% above its Jan. 13 settlement on Tuesday in London, meeting a common definition of a bull market.

“It’s hard to fight with the fundamentals,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “Until you really see production starting to be cut, you are not going to see any kind of sustainable rally. Any kind of strength will be sold into.”

West Texas Intermediate for March delivery decreased $4.66, or 8.8 percent, to $48.39/bbl at 2:12 p.m. on the New York Mercantile Exchange. It gained 19% in the four days to Tuesday, settling at $53.05, the highest close this year. The volume of all futures traded was 55% above the 100-day average for the time of day.

‘Fundamentally Weak’

Brent for March settlement slipped $3.69, or 6.4%, to $54.22/bbl on the ICE Futures Europe exchange in London. The European benchmark crude traded at a premium of $5.76 to WTI on the ICE.

“We are not moving into a bull market,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s still fundamentally weak. WTI is probably going to move between $45 and $50.”

The CBOE Crude Oil Volatility Index, which measures oil price fluctuations using options of the U.S. Oil Fund, climbed as far as 63.10 Wednesday, the highest since August 2011.

U.S. crude inventories rose to 413.1 MMbbl highest level in weekly data compiled by the EIA since August 1982, the Energy Department’s statistical arm said.

Stockpiles at Cushing, Oklahoma, the delivery point for WTI futures, increased 2.52 MMbbl to 41.4 MMbbl.

“The rebound is coming to an end,” said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut. “We are still going to grind lower until we get a real indication that production levels are starting to drop.”

Refinery Strike

Talks were scheduled to resume on Wednesday to resolve the biggest U.S. oil-worker refinery strike since 1980. The United Steelworkers union, representing employees at more than 200 refineries, terminals, pipelines and chemical plants, stopped work at nine sites on Feb. 1 after negotiations stalled.

The sites affected by the halt account for 10% of U.S. refining capacity, data compiled by Bloomberg show. One plant has ceased production and a full walkout of union workers would threaten as much as 64% of fuel output.

Abu Dhabi, the desert emirate holding about 6% of the world’s oil, cut export prices for its crude for the seventh consecutive month Tuesday to the lowest since 2009. Murban crude, its main grade, sold in January for $46.40/bbl, or 23% below December’s level, according to an e-mailed statement from Abu Dhabi National Oil Co. Murban hasn’t sold for less since February 2009, data compiled by Bloomberg show.

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