Oil futures closed lower Wednesday for second straight session as rising worries about the outlook for energy demand combined with news of a hefty jump in U.S. crude supplies to pull prices down by nearly 3%.
Prices pared some losses to recoup the $91 level shortly after the U.S. Federal Reserve made no changes to its bond-buying program, but said it was prepared to “increase or reduce the pace of its purchases.” Economic stimulus is supportive for energy demand.
Crude oil for June delivery -0.15% fell $2.43, or 2.6%, to settle at $91.03 a barrel on the New York Mercantile Exchange. That was the lowest settlement since April 23.
The June contract for rival benchmark Brent crude +0.11% fell below the $100-a-barrel level. It finished down $2.42, or 2.4%, to $99.95 a barrel in London. It hasn’t closed below $100 since April 19.
The government numbers were “definitely a surprise,” said Tariq Zahir, managing member at Tyche Capital Advisors.
“We would surmise that we will continue to see weakness across the energy sector,” he said, adding that “revisit of sub-$90” on West Texas Intermediate crude is “a real possibility.” It touched a low of $90.11.
The U.S. Energy Information Administration reported a jump in last week’s crude supplies that was more than four times higher than expected. Crude supplies rose 6.7 million barrels for the week ended April 26. Analysts polled by Platts expected a 1.4 million-barrel climb.
Late Tuesday, the American Petroleum Institute said U.S. crude supplies surged 5.2 million barrels last week.
The EIA report Wednesday showed that motor gasoline supplies declined by 1.8 million barrels, while distillate stockpiles rose by 500,000 barrels. Forecasts called for a decline of 900,000 barrels for gasoline, with distillate stockpiles expected to be unchanged.
June gasoline +0.09% dropped 8 cents, or 3%, to $2.72 a gallon and June heating oil -0.03% fell 5 cents, or 1.8%, to close at $2.79 a gallon.
The fall in gasoline supplies is “normal as refiners switch to summer blends,” said James Williams, energy economist at WTRG Economics. “Over the next few weeks, we will see gasoline stocks rise.”
On Nymex, natural gas turned lower late in the Nymex session. June natural gas -0.37% fell nearly 2 cents, or 0.4%, to $4.33 per million British thermal units after trading at a high of $4.44.
The EIA’s weekly update on supplies is due Thursday. Analysts polled by Platts forecast a climb of between 28 billion cubic feet and 32 billion for the week ended April 26.
China feeds worry
Oil prices had already been falling on the back of the China’s weaker than expected PMI and disappointing ADP numbers in the U.S.
Automatic Data Processing Inc. reported Wednesday that private employers added 119,000 jobs in April, the weakest gain since September. The ADP report offers some guidance on the U.S. Department of Labor’s jobs estimate, which will be released Friday.
Further feeding worries about the prospects for energy demand, China’s official gauge of manufacturing activity fell in April, though the index still registered mild growth. The manufacturing purchasing managers’ index came in at 50.6, and economists surveyed by Dow Jones Newswires had expected an unchanged reading from March at 50.9.
The PMI report “suggests that the China economy remains on the recovery path, but the recovery momentum is relatively weak,” wrote Asia Pacific emerging-markets analysts at J.P. Morgan to clients. China, the world’s second largest-economy, is a major consumer of oil and other commodities.
HSBC last week released a similarly weak reading of its version of the preliminary China manufacturing PMI for April.
Oil futures on Tuesday fell 1.1%, with a weak reading in Chicago manufacturing-activity data adding to the market’s concerns about physical demand for energy. Those demand concerns pressured Nymex oil prices in April, leaving them lower by 3.9%.