Crude Ends Lower After Data

A decline in crude stocks is offset by builds in gasoline and distillates.
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Updated from 12:17 p.m. EST

Oil futures fell for a third session Wednesday as an unexpected decline in crude inventories last week was offset by builds in gasoline and distillate stocks.

Crude for March delivery lost $1.21 to $65.85 a barrel, after losing $1 on Tuesday. Although oil prices are down 4.8% since hitting $69.20 on Monday, they are still 33% higher than a year ago.

Natural gas futures dipped 22 cents to $8.46 per million British thermal units, returning to levels not seen since hurricanes shut down much of the Gulf Coast petroleum industry in late August.

According to the Energy Department, crude inventories fell by 2.3 million barrels to 319.1 million barrels, thanks to a barge accident that closed a Texas ship channel. The

Total

(TOT) - Get Report

refinery in Port Arthur, which can process 240,000 barrels per day, has been closed since Jan. 17. The Department of Energy approved an emergency loan of 871,000 barrels from the Strategic Petroleum Reserve to the refinery, but it was not scheduled to be available until last Saturday.

Despite the drop, oil supplies remain 11% above the same period last year. The unexpected decline in crude stocks surprised analysts, who had been expecting a 1.4 million-barrel increase, and proved, once again, how difficult it is to predict inventory levels. Petroleum companies are often loath to detail their crude shipments and dates.

The accident shaved crude imports by 589,000 barrels per day last week to 9.3 million barrels. Over the past four weeks, crude imports have been 119,000 barrels per day lower than the same period a year ago.

Gasoline inventories rose 3.2 million barrels, roughly twice the expected rate, to 214.8 million barrels as demand and imports picked up. Gasoline slid 8 cents to $1.66 a gallon even though stocks remain 1.6% below the same period last year.

Abnormally warm weather has driven down heating demand and boosted stocks of distillates, which include diesel and heating oil, by 1.8 million barrels, double the estimate. Demand is 2.4% below the same period last year thanks to warm weather. Heating oil dropped 3 cents to $1.79 a gallon on lower demand.

Open interest, or the number of option contracts that have been traded but not liquidated, has fallen in recent days, which Edward Meir, a commodity analyst at Man Financial, said indicates that investors holding long positions, or bets that prices will rise, are not diving into the market as fast as before.

For the past week, traders have been focused on world tensions that may affect crude supplies. Recent pipeline and platform attacks in Nigeria, a nuclear standoff with Iran and lower Russian fuel imports to Europe have driven up prices 10% this year.

"The market concern is not over current supply but over the inability to cover any supply interruption," said James Williams, an economist with WTRG Energy Economics in London, Ark.

Geopolitical concerns are likely to remain center in traders' minds because of Iran's refusal to back down and the ongoing violence in Nigeria. Italian oil company Agip pulled all of its workers out of Port Harcourt in the Nigerian Delta because of an attack yesterday that killed nine people. Meanwhile, the International Atomic Energy Agency, the U.N.'s nuclear watchdog, meets Feb. 2 to discuss whether to refer Iran to the U.N. Security Council for economic sanctions.

The drop in crude stocks pulled down energy stocks Wednesday, with

Valero Energy

(VLO) - Get Report

falling $2.07, or 3.4%, to $58,23;

BP

(BP) - Get Report

losing 58 cents, or 0.8%, to $69.96, and

Halliburton

(HAL) - Get Report

dipped $2.27, or 3%, to $73.68.

Shares of

ExxonMobil

(XOM) - Get Report

fell $1, or 1.7%, to $59.91, even though the supermajor announced a 3-cent increase in its first-quarter cash dividend to 32 cents. The dividend is payable to shareholders of record on Feb. 10.

ConocoPhillips

(COP) - Get Report

, the third-largest domestic oil company, reported its fourth-quarter net income skyrocketed 51% thanks to high refining margins and natural gas prices. Net income was $3.68 billion, or $2.61 a share, compared with last year's $2.43 billion, or $1.72 a share. Conoco shares fell $1.39, or 2.2%, to $63.09 in trading Wednesday.

The earnings-release parade continues Thursday, with

Marathon Oil

(MRO) - Get Report

,

Peabody Energy

(BTU) - Get Report

and

Halliburton

reporting their fourth-quarter and year-end results.