Crude futures on Wednesday ended at their lowest since late August, as investors fretted about demand and ignored a largely positive weekly report pointing to a surprise decline in inventories.
A drop below $90 a barrel at the beginning of floor trading subjected oil to a wave of technical selling that contributed to the sharp decline.
Crude for November delivery fell $3.75, or 4.1%, to settle at $88.14 a barrel on the New York Mercantile Exchange. That was also oil’s largest one-day percentage decline since December.
Traders looked past the supportive report from the Energy Information Administration, said Bill O’Neill, a principal with Logic Advisors in New Jersey.
“People have been so focused on geopolitical events that the supply-and-demand equation has taken a back seat,” he said. “The demand outlook is still not good.”
Even with Wednesday’s report showing the decline, supplies are still plentiful and recent indicators, such as a weak services data out of China, have called demand into question, O’Neill added.
The EIA reported a decline of 500,000 barrels in stockpiles of crude for the week ended Sept. 28. Analysts polled by Platts had expected a rise by 1.5 million barrels.
Oil production was 12% above last year’s level and represents the highest production since 1996, mostly due to an increase in Alaskan oil production, analysts at BNP Paribas wrote in a note.
“It is the prospect of higher crude output that is dampening sentiment toward U.S. crude oil prices, despite the latest reported crude stock draw,” they said.
For Matt Smith, an analyst with Schneider Electric, the multiyear highs for U.S. oil production didn’t come as a big surprise for markets and Wednesday’s selloff “reflects economic concerns relating to China more than rising domestic production.”
The EIA also reported gasoline supplies up 100,000 barrels, and inventories of distillates down 3.7 million barrels.
The analysts surveyed by Platts had forecast gasoline stocks unchanged, and distillate stockpiles down 400,000 barrels for the week.
Prices had traded around $89.55 a barrel minutes before the report, pared declines slightly but resumed their fall shortly after.
Oil also ignored some mildly positive macroeconomic data in the United States. Earlier, payroll-processing firm ADP said the private sector added 162,000 jobs in September. Consensus hovered around 152,000 jobs.
Source: Claudia Assis and Robert Daniel, MarketWatch.com