Bloomberg: Largest Oil Stockpile in 20 Years – Still $70/bbl

Crude oil futures traded near their lowest level in a month on concern that the recovery is not strong enough to whittle down excessive U.S. fuel inventories.

Oil dropped after an unexpected increase in applications for unemployment benefits last week was reported by the Labor Department. The U.S. Energy Department report yesterday showed that total petroleum stockpiles surged to the highest level in at least 20 years. Crude futures in New York subsequently fell to $73.83 a barrel, the lowest in more than a month.

“All the macro data points to a slowdown in the growth in the second half, which would be bearish for commodities,” said Gerrit Zambo, a trader at Bayerische Landesbank in Munich. “I see a good chance to slip down to $70 in the coming weeks and months.”

Crude oil for September delivery slipped 29 cents, or 0.4 percent, to $75.13 a barrel on the New York Mercantile Exchange, as of 1:35 p.m. London time. Brent crude for October traded down 41 cents at $76.06 a barrel on the ICE Futures Europe Exchange in London.

Yesterday, oil futures in New York dropped 35 cents, or 0.5 percent, to $75.42, the lowest settlement since Aug. 16. U.S. crude stockpiles fell 818,000 barrels to 354.2 million barrels, the Energy Department reported. Supplies were estimated to drop by 1 million barrels, according to a Bloomberg News survey.

Inventories of distillate fuel climbed 1.07 million barrels to 174.2 million last week. Supplies were forecast to increase by 1.5 million barrels, according to the median of 18 analyst estimates in the Bloomberg survey.

Gasoline Supplies Fall

Gasoline inventories dropped 39,000 barrels to 223.3 million, the department said in a weekly report. A 375,000- barrel decline was forecast by the analysts surveyed.

Initial jobless claims rose by 12,000 to 500,000 in the week ended Aug. 14, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance fell, while those getting extended benefits increased.

Crude in New York rose as high as $76.10 a barrel earlier today after Chinese equities rose to a three-month high, increasing optimism that growth in emerging markets will support fuel demand.

Economic growth in China and other emerging markets will drive crude oil to $100 a barrel next year, according to Hussein Allidina, the head of commodities research at Morgan Stanley.

Data from the bank shows the link between crude prices at China’s increasing demand for oil. China now consumes more than 10 percent of the world’s oil, up from 5.7 percent in 1997.

“Demand is only just starting to grow in the emerging markets,” Allidina said. “Over the next five years, prices will have to move higher to ration demand. If you look at the supply picture, there doesn’t seem to be enough production coming online to meet both expected output declines and demand growth.”

To contact the reporter on this story: Grant Smith in London at [email protected]

Bloomberg