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Crude Futures on the Decline

Chuck Marvin

Crude oil and distillate futures were trading lower Wednesday after the Energy Information Administration reported declines in U.S. oil inventories.

Following a dollar advance to $59.85 in early action, the near-term crude oil contract slid heavily after the EIA inventory figures were published. At 2:45 p.m. EST, crude oil was trading at $57.80, down $1.08 on the session, according to the New York Mercantile Exchange.

Heating oil futures were down nearly 2 cents to $1.67. Gasoline was off 3 cents to $1.54.

Natural gas continued to receive upward support, trading 9 cents higher at $7.71. The EIA will release inventory figures for natural gas Thursday morning.

U.S. crude inventories dropped by 400,000 barrels during the week ended Feb. 2, according to the EIA report. Although that was well below the 2.2 million-barrel build that analysts had expected, it still sent prices for crude oil and its distillates falling.

Crude oil has hovered just below the $60 level in recent days, caused in part by freezing temperatures blanketing much of the country. Although temperatures remain in the mid-teens for much of the Eastern seaboard, they are expected to increase moderately through the remainder of the week. This will likely alleviate upward price pressure on fossil fuels.

Higher-than-expected supplies of oil are also preventing crude from climbing beyond its intermediate-term price caps, according to Edward Meir, who writes The Man Energy Daily Report.

The EIA is estimating that OPEC pumped 30.01 million barrels per day in January, as opposed to 30.34 million barrels a day in December. These figures indicate that the OPEC cartel's crude oil production was greater than the target amount set at its most recent meeting. OPEC reached only half of its goal of cutting 1.2 million barrels a day by the end of January, many analysts believe.

"Strong production gains in the Caspian Sea, Russia, Africa, Brazil and the United States will likely offset declining production in the North Sea, the Middle East and Mexico," Meir wrote in his report.

In the equities market, Devon Energy(DVN Quote) was on the move after it posted earnings that were in line with analyst expectations. Lately, Devon's stock fell 92 cents to $68.88.

Excluding certain items, Devon earned $1.36 a share on sales of $2.61 billion. Sales were down from $3.19 billion a year earlier. The company said in a press release that the decline in revenue was due to lower natural gas prices and a falloff in oil and gas production.

Calyon Securities upgraded the stock of oil and gas equipment manufacturer National Oilwell Varco (NOV Quote), but recently the shares were down 6 cents at $65.62. Calyon also increased the company's price target from $71 to $84.