Wednesday, July 28, 2010

Crude Falls on Inventory Build

Crude futures fell Wednesday after a report from the U.S. Department of Energy showed a surprising increase in oil inventories.

Light, sweet crude for September delivery recently traded $1.01, or 1.3%, lower at $76.49 U.S. a barrel on the New York Mercantile Exchange, after dropping as low as $75.90 U.S. immediately following the report. Brent crude on the ICE futures exchange traded 73 cents lower at $75.40 U.S. a barrel.

Oil prices quickly added to earlier losses after the energy department's Energy Information Administration reported oil inventories had risen by 7.3 million barrels in the week ended July 23. Analysts had anticipated a decline of 1.7 million barrels in a Dow Jones survey.

The builds in inventories add to a gain of 3.1 million barrels last week, demonstrating that the market is still flush with supplies even as concerns about future demand continue in the face of a sluggish economic recovery.

The largest gains in stockpiles were seen in the Gulf Coast region, which posted an 8.2-million-barrel build from the week ended July 16. Analysts attributed much of the gains to the effect of Tropical Storm Bonnie, which entered the Gulf Of Mexico last weekend. Many producers likely unloaded inventories ahead of the storm.

Meanwhile, fuel inventory gains were smaller than analysts anticipated. Gasoline stockpiles rose by 100,000 barrels, below analyst expectations for a build of 500,000 barrels. Distillates rose by 900,000 barrels, while analysts projected an increase of 2.1 million barrels.

Refinery use fell to 90.6%, below analysts' estimate of 91% utilization.

The data come at a time of a drop in equities markets, which crude has followed closely as a proxy for future economic growth, and additional economic data that pushed markets lower on fears of a slowing recovery.

After attempting to break out of the top of its recent range of $70 to $80 U.S. late last week, the drop following the EIA's report again sent crude heading towards the bottom of the range.

Futures briefly dropped below $76.10 U.S. following the release of the EIA data, an important technical level. Another drop below this level could push oil prices into the $75 a barrel range, some experts said.

Front-month August reformulated gasoline blendstock, or RBOB, recently traded 2.52 cents, or 1.2%, lower at $2.0380 U.S. a gallon. August heating oil recently traded 1.71 cents, or 0.8%, higher at $1.9823 U.S. a gallon.