Oil pares strongest January since 2013 on U.S. supply outlook

By Grant Smith on 1/31/2018

LONDON (Bloomberg) -- Oil slipped for a third day in New York, continuing its retreat from a three-year high, on estimates that U.S. crude  stockpiles increased last week.

West Texas Intermediate futures fell 0.5%, bringing their monthly advance to 6.3%. Data from the U.S. Energy Department is forecast to show that inventories probably rose by 900,000 bbl to 412.5 million, according to a Bloomberg survey.

“Strong U.S. crude supply growth and deteriorating inventory dynamics” could “trigger a sentiment shift and unsettle the record speculative length in the oil market,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich.

Ten consecutive weekly declines in American stockpiles had helped crude breach $66/bbl for the first time since December 2014. Oil’s fifth consecutive monthly gain has also been driven by a weaker dollar amid conflicting remarks on the currency from President Donald Trump and his top officials.

West Texas Intermediate for March lost as much as 83 cents to $63.67/bbl on the New York Mercantile Exchange, and was at $64.19 at 1:44 p.m. in London. The U.S. benchmark crude fell 1.6% to close at $64.50 on Tuesday, the biggest decline since Dec. 6. Total volume traded was about 22% below the 100-day average.

Brent for March settlement, which expires Wednesday, was at $68.72/bbl on the London-based ICE Futures Europe exchange, down 30 cents. Prices slipped 0.6% to $69.02 on Tuesday. The more-active April contract dropped 24 cents to $68.28. Front-month futures have risen about 2.8% in January. The global benchmark crude traded at a premium of $4.54 to WTI.

U.S. crude stockpiles climbed by 3.23 MMbbl last week, the American Petroleum Institute was said to report, before Energy Information Administration data on Wednesday. Meanwhile, American oil production climbed to 9.88 MMbpd in the week ended Jan. 19, the highest level in weekly EIA data since 1983.

Gasoline inventories rose by 2.69 MMbbl last week, while distillates fell, according to the API report. Front-month gasoline futures on the Nymex are set for a 4.7% gain in January, a second monthly increase, while diesel futures are headed for a 0.4% drop to $2.0683/gal this month, ending a sixth consecutive monthly advance.

The Bloomberg Dollar Spot Index, a gauge of the currency against 10 major peers, has declined about 3.6% this month, while the Bloomberg Commodity Index that measures returns on 22 basic resources from crude to copper climbed 2% in January.

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