West Texas Intermediate oil fell Thursday after the Federal Reserve ended its asset-purchase program and U.S. crude production surged to the highest level since the 1980s. Brent declined in London.
Futures slipped 1.3 percent in New York. The dollar strengthened a second day against the euro after the Fed’s announcement, curbing the appeal of commodities priced in the U.S. currency as a store of value. U.S. crude supplies rose for a fourth week as output increased to 8.97 million barrels a day, Energy Information Administration data showed Wednesday.
“Yesterday’s Fed announcement is pushing the dollar higher, which is putting selling pressure on commodities,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Conn. “The supply build yesterday may have been smaller than expected but it was still quite large. Ample supply and economic worry are going to continue to weigh on the market.”
WTI for December delivery dropped $1.08 to settle at $81.12 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 24 percent below the 100-day average at 3:05 p.m. Futures touched $79.44 Oct. 27, the lowest intraday level since June 29, 2012. Prices have decreased 18 percent this year.
Brent for December settlement declined 88 cents, or 1 percent, to end the session at $86.24 a barrel on the London-based ICE Futures Europe exchange. Volume was 31 percent lower than the 100-day average. The European benchmark crude closed at $5.12 premium to WTI, up from $4.92 Wednesday.
The Fed said Wednesday that the U.S. labor market has strengthened enough to withstand an end to its unprecedented asset-purchase program and downplayed risks posed by declining inflation. The dollar added 0.6 percent to $1.2556 per euro after climbing 0.8 percent Wednesday.
“It’s another negative factor for the oil market and for commodities in general, coming on top of an already oversupplied oil market,” Hans van Cleef, energy economist at ABN Amro Bank NV in Amsterdam, said by phone of the Fed’s move. “When you pull money out of the market, normally the first thing you’d sell is riskier assets.”
U.S. crude output rose 0.4 percent last week, according to weekly EIA estimates that began in January 1983. The agency’s monthly data, which goes back to 1920 and is based on data collected by state and federal agencies, shows production at the highest since 1986.
U.S. crude stockpiles increased 2.06 million barrels to 379.7 million in the week ended Oct. 24, according to the EIA, the Energy Department’s statistical arm. A 3.65 million-barrel gain was projected in a Bloomberg survey of analysts.
Gasoline inventories dropped 1.24 million barrels to 203.1 million, the lowest level since November 2012, the data showed. Stockpiles of distillate fuel, a category that includes heating oil and diesel, fell 5.3 million barrels to 120.4 million.
November gasoline futures decreased 2.49 cents, or 1.1 percent, to settle at $2.1958 a gallon on the Nymex. Ultra low sulfur diesel for November delivery dropped 2.22 cents, or 0.9 percent, to close at $2.5128 a gallon.
Regular gasoline at U.S. pumps fell to the lowest level since December 2010. The average retail price dropped 1.3 cents to $3.01 a gallon Wednesday, according to AAA, the nation’s biggest motoring group. In Houston Thursday, the average was $2.827 a gallon, down from $2.838 Wednesday.
“Today’s move just reinforces a bearish trend,” Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston, said by phone. “Unless we end the week on a positive note I suspect we’ll test new lows next week.”
Crude has collapsed into a bear market amid increasing global supplies as leading members of the Organization of the Petroleum Exporting Countries resisted calls to cut production. Futures are down about 11 percent in October, set for the largest monthly loss since May 2012.
Supply and demand will return to equilibrium and OPEC members aren’t waging a price war, Secretary-General Abdalla El- Badri said Wednesday.
The group, which pumps about 40 percent of the world’s oil, doesn’t face a “critical situation” as a result of falling prices, according to El-Badri. Its collective output in 2015 will remain close to this year’s level of about 30 million barrels a day, he said at the Oil & Money conference in London.
OPEC crude production rose to a 14-month high in October as oil futures sank into a bear market, a Bloomberg survey showed. Output climbed by 53,000 barrels a day to 30.974 million, led by gains in Iraqi, Saudi Arabian and Libyan output, according to the survey of oil companies, producers and analysts.
Also Thursday, natural gas futures rose for a third day in New York as forecasts showed below-normal temperatures that would stoke demand for the heating fuel.
Natural gas for December delivery rose 3.9 cents, or 1 percent, to settle at $3.827 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 16 percent below the 100-day average at 2:36 p.m. Futures are up 5.7 percent from a year ago.
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