Coverage: Oil prices drop as inventories hit record

U.S. oil prices dropped to a two-month low Wednesday after federal data showed U.S. inventories of crude oil and refined products at a record high.

Nicole Friedman of Dow Jones Newswires had the news:

U.S. oil prices have hovered between $45 and $50 a barrel in recent weeks as traders weigh ample stockpiles against expectations that declining production around the world would shrink the global glut of crude.

The Energy Information Administration said Wednesday that U.S. crude inventories fell in the week ended July 8, but the decline was outweighed by a larger increase in refined-product supplies, including gasoline and distillate fuels like diesel. Total commercial supplies of crude oil and products rose by 7.1 million barrels to 1.38 billion barrels, a record in weekly EIA data going back to 1990.

That data strengthened fears that the glut of crude oil that sent prices plunging in 2014 and 2015 has turned into a glut of refined fuels. Despite strong demand from drivers this summer, supplies of gasoline and other fuels continue to grow as refineries run at high rates to churn out more refined products.

U.S. crude for August delivery settled down $2.05, or 4.4%, to $44.75 a barrel on the New York Mercantile Exchange, the lowest settlement since May 10. Brent, the global benchmark, fell $2.21, or 4.6%, to $46.26 a barrel on ICE Futures Europe.

Myra Saefong and Sara Sjolin reported that the Energy Information Administration reported crude stockpiles less than some analysts expected:

Early Wednesday, the EIA reported U.S. crude supplies fell by 2.5 million barrels for the week ended July 8. That was in contrast to the 2.2 million-barrel climb reported by the American Petroleum Institute late Tuesday, and less than the decline of 3.25 million barrels expected by analysts polled by S&P Global Platts.

The EIA figures also showed that total domestic production, which includes Alaska, climbed by 57,000 barrels a day to 8.485 million barrels a day, though stocks in the lower 48 states edged down by 14,000 barrels to 8.074 million barrels a day.

Gasoline supplies rose 1.2 million barrels, while distillate stockpiles jumped by 4.1 million barrels last week, according to the EIA. Analysts polled by Platts looked for a fall of 125,000 barrels for gasoline and a rise of 375,000 barrels for distillates.

Grant Smith of Bloomberg News focused on the Middle East output:

Middle Eastern output exceeded 31 million barrels a day for a third month in June amid near-record supply from Saudi Arabia, while U.S. oil production slid 140,000 barrels a day to 12.45 million, the agency said in its monthly market report. The IEA, which mostly kept forecasts for supply and demand unchanged, said that while the rebalancing of the oil market is progressing, brimming inventories remain “a threat to the recent stability of oil prices.”

“When U.S. shale production was moving upwards very fast it became fashionable to talk of lower reliance on traditional suppliers,” the Paris-based IEA said. The Middle East’s resurgence is “an eloquent reminder that even when U.S. shale production does resume its growth, older producers will remain essential for oil markets.”

Oil has recovered more than 70 percent from the 12-year low reached in January as Saudi Arabia’s strategy to pressure OPEC’s rivals succeeds in reversing the U.S. shale oil boom. Elevated output from the Middle East has pushed the region’s share of world supplies to 35 percent, the highest since the late 1970s, according to the IEA.

Production from the Organization of Petroleum Exporting Countries climbed to an eight-year high last month, boosted by the re-admission of Gabon, which swelled the number of members to 14, the IEA said. The group’s crude output rose 400,000 barrels a day to 33.21 million a day as Saudi Arabia increased production to meet peak domestic demand during the summer and as Iran continued its export recovery following the end of international sanctions