File photo of an oil pump jack in a field near Calgary.TODD KOROL/Reuters
Oil fell to a six-year low on speculation that U.S. crude inventories climbed from the highest in more than three decades. Prices dropped to a level that would mark the return to a bear market on a closing basis.
Futures slipped as much as 2.9 per cent in New York, a sixth straight decline. Crude supplies rose 3.9 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report on Wednesday.
U.S. output has risen to the highest in three decades even as oil explorers idle an unprecedented number of drilling rigs. Price swings in crude will ease in the second half of the year and U.S. production will probably start contracting by December, Vitol Group's chief executive officer said, predicting no return to $100 a barrel within three years.
"We're going to continue to see stock builds in the U.S. for a while," Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said by phone. "There shouldn't be an improvement in the global supply-demand balance until the second half of the year."
Falling Prices West Texas Intermediate for April delivery fell 23 cents, or 0.5 per cent, to $43.65 a barrel at 9:35 a.m. on the New York Mercantile Exchange. Prices tumbled to $42.63, the lowest level since March 12, 2009. A settlement at $42.82 or lower would be 20 per cent below this year's peak, meeting a common definition of a bear market. The volume of all futures traded was 15 per cent higher than the 100-day average for the time of day.
Brent for May settlement slipped 97 cents, or 1.8 per cent, to $52.97 a barrel on the London-based ICE Futures Europe exchange. The April contract expired Monday after dropping to $53.44. Volume was up 12 per cent from the 100-day average. The European benchmark crude traded at a $7.67 premium to the May WTI contract.
U.S. crude inventories climbed for nine weeks through March 6 to 448.9 million barrels, the highest in weekly EIA records dating back to August 1982. Production accelerated to 9.37 million barrels a day, the fastest pace since at least January 1983, according to the Energy Department's statistical arm.
"Even with the rig count down by nearly half there's no sign that supplies are abating," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. "There's been no production response to the fall in prices yet, either from U.S. producers or OPEC. We'll need to see one for prices to rebound."
Eventual Cuts
It's uneconomic for some U.S. companies to continue operating at current prices and supply will eventually be cut, said Ian Taylor, CEO of Vitol, the world's largest independent oil trader. The market remains oversupplied and prices may weaken further until that supply slowdown takes place, he said.
"The market will come to balance by the second half of the year and we should see prices steady up and maybe go up a bit from there," Taylor said at a conference in Cape Town Tuesday.
Iran could increase exports by 1 million barrels a day if international sanctions were lifted, Oil Minister Bijan Namdar Zanganeh said as talks resumed over its nuclear program.
Nuclear Talks
Iran's government is negotiating an agreement with world powers to end a decade-long dispute over its nuclear activities. Diplomats from the U.S. and Iran, working toward an end-March deadline, resumed talks on Monday in Lausanne, Switzerland. The Persian Gulf nation exported 1.2 million barrels a day of oil last month, the International Energy Agency said March 13. The country is the fifth-largest producer in OPEC.
"If an agreement is reached Iran could add another million barrels a day to the market, not to mention all the oil they have in storage," Kilduff said. "There are also signs that Libyan production is rebounding."
Production in Libya is near 490,000 barrels a day after the restart of the Elephant and Wafa fields, the Libya News Agency reported.
Libya, holder of Africa's biggest oil reserves, has managed to restore some production despite clashes between its Tobruk– based government and their Islamist rivals, who control the capital in Tripoli. The rate of 490,000 barrels a day reported by Lana is more than double the average level pumped in February, when output was at the lowest in 10 months, according to data compiled by Bloomberg.
Stockpiles of gasoline and distillate fuel, a category that includes diesel and heating oil, probably dropped in the week ended March 13, according to analysts surveyed by Bloomberg.
Gasoline futures for April delivery fell 1.76 cents, or 1 per cent, to $1.711 a gallon. April ultra low sulfur diesel slipped 1.07 cents, or 0.6 per cent, to $1.6879 a gallon.
Regular gasoline at U.S. pumps is falling. The average retail price slipped 0.9 cent to $2.415 a gallon Monday, according to AAA, the nation's biggest motoring group.