U.S. crude fell below $41 per barrel Wednesday after a government report showed an unexpectedly large increase in the amount of oil in U.S. storage tanks.

The U.S. benchmark crude price fell as much as $2.02 to $40.60 per barrel on the New York Stock Exchange, its lowest point in intraday trading since 2009. During the financial crisis, West Texas Intermediate crude settled at a low of $33.98 a barrel in February 2009. Brent, the international standard, fell 84 cents to $47.97 a barrel in early trading on the ICE Futures Europe.

The rout was kicked off by news from the U.S. Energy Information Administration that commercial inventories of crude oil rose by 2.6 million barrels in the week ending Aug. 19. Inventories are seen as a proxy for oil’s supply and demand — surplus crude is put in tanks while shortfalls are met by draining stocks.

The 2.6 million barrels of newly stored oil took traders by surprise Wednesday. An average of 10 estimates compiled by Bloomberg had predicted a decline of 354,000 barrels. On Tuesday, the American Petroleum Institute reported a 2.3 million barrel decrease in crude oil stores. The U.S. EIA data is seen as more definitive than the API data.

Analysts expected a drawdown because refineries across the nation have been running at full capacity to crank out as much gasoline as possible before summer driving season comes to an end around Labor Day.

But oil didn’t come out of tanks, in part due to an ongoing shutdown at the largest refinery in the Midwest — BP’s plant in Whiting, Indiana — that has limited the amount of oil soaked up by the refining sector. The plant saw the largest of three crude distillation units knocked out Aug. 8 because of leaking pipes, crippling the plant to less than half its operating capacity, according to GasBuddy.com and the U.S. Energy Information Administration.

It may take BP a month to repair the problem, according to EIA.

BP in a statement Wednesday said that as repair work continues, it has tried to address the shortfall by snapping up additional fuel supplies for customers.

BP’s refinery outage led to an unanticipated inventory build at the Cushing, Oklahoma oil hub and was accompanied by an influx of 8 million barrels of imports, said Andy Lipow, president of Lipow Oil Associates in Houston. Meanwhile, oil production growth from shale plays in Texas and elsewhere has begun to peter out.

“We’re seeing now some significant decline in domestic production from peak levels, and it appears we’re starting to see the impact in the decline in rig counts,” Lipow said, noting U.S. production has slipped by about 300,000 barrels a day in recent months.

“But the fact remains the world is oversupplied with record crude production from Saudi Arabia and Iraq and is anticipating the return of Iranian crude,” he said.

Last week’s inventory build was the first time that the EIA had reported a gain in inventories since the week of July 17. It was the largest increase registered since the week of April 17. The latest reading of U.S. crude oil in tanks now totals 456.2 million barrels, excluding the government’s Strategic Petroleum Reserve.

Stores of gasoline fell by 2.7 million barrels last week, according to the EIA figures. Total stocks of the motor fuel now stand at 212.8 million barrels.

Source: www.fuelfix.com

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