U.S. oil futures slumped to the lowest level since March 2009 on speculation that record supply may start to strain the country’s storage capacity.
U.S. crude inventories have increased to the highest level since at least 1982, according to the Energy Information Administration. Stockpiles at Cushing, Oklahoma, the delivery point for New York futures, reached about 70 percent of working storage capacity.
Prices are reversing a rebound, which had sent West Texas Intermediate crude up near $55 a barrel in February, as inventories continue to rise and the dollar strengthens. The International Energy Agency raised its U.S. production forecast as drilling-rig cuts failed to slow output growth. Speculators cut bullish bets on WTI to the lowest level in more than two years, U.S. Commodity Futures Trading Commission data show.
“It’s highly probable that we will reach the inventory capacity,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion. “Once you run out of storage space, that oil has no place to go and prices will just fall.”
West Texas Intermediate for April delivery dropped $1.46, or 3.3 percent, to $43.38 a barrel at 1:32 p.m. on the New York Mercantile Exchange after touching $42.85. The volume of all futures traded was about 21 percent above the 100-day average for the time of day.
Brent for April settlement, which expires today, fell $1.66, or 3 percent, to $53.01 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $9.57 to WTI on the ICE. The more active Brent contract for May was $1.69 lower at $53.32.
WTI extended losses after Genscape Inc. was said to report that supplies at Cushing increased in the week ended March 13, according to Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
“It’s a reminder of the high supply situation at Cushing,” Flynn said.
U.S. crude stockpiles increased for the nine weeks through March 6 to 448.9 million barrels, the highest in EIA records dating back to August 1982. The country pumped 9.37 million barrels a day, the fastest pace in weekly estimates compiled by the Energy Department’s statistical arm since 1983.
Stockpiles at Cushing rose by 2.32 million barrels to 51.5 million, the highest level since January 2013. Cushing has a working capacity of 70.8 million barrels, according to the EIA.
“We’ll see more inventory builds in the next few weeks,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “Production is going to probably still increase here in the U.S. despite rig-count cuts. The dollar is adding pressure. We could test $40 soon.”
U.S. oil production will expand this year by about 750,000 barrels a day to 12.56 million a day, the IEA said in a report on Friday. That’s up from an estimate of 12.41 million in last month’s report. The IEA’s forecast includes natural gas liquids and condensate.
Rigs targeting oil in the U.S. shrank by 56 to 866 last week, the fewest since March 2011, said Baker Hughes Inc. Companies have idled 709 machines since the start of December, a 45 percent decline, according to the services company.
The Organization of Petroleum Exporting Countries is pumping about 1.9 million barrels a day more than the level it estimates will be needed to balance the global market in the second quarter, according to its monthly report released on Monday.
Low oil prices are hurting all producers including Saudi Arabia, which “has never been in a price war with anybody,” according to Ibrahim Al-Muhanna, an adviser to Saudi Oil Minister Ali al-Naimi.
Saudi Arabia led OPEC in resisting calls to cut output at a meeting in November. The 12-member group, which supplies about 40 percent of the world’s oil, is scheduled to gather on June 5.
Hedge funds and other money managers reduced their net-long position on WTI by 2.5 percent in the seven days ended March 10 to 160,278, according to the CFTC.
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