Oil retreated from a 3-year high as expanding inventories of gasoline and diesel in the world’s biggest economy tempered enthusiasm about shrinking crude supplies.
Futures lost 1 percent in New York, trimming this week’s advance to 1.6 percent. Gasoline stored in U.S. terminals and tanks swelled for an eighth straight week, a phenomenon not seen since the winter of 2015-2016. Ample stockpiles of gasoline and other fuels may signal an imminent fall-off in refiners’ demand for crude that helped support the recent price rally.
“It kind of threw cold water on that rally a little bit,” said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York. The fuel build “implies the need to scale back the refinery utilization rate, unless you want to keep banging out that level of product.”
Oil in New York has reached a level where profits are high enough to encourage a further expansion in U.S. drilling, compounding speculation that efforts by the Organization of Petroleum Exporting Countries to boost prices may prove self-defeating.
West Texas Intermediate crude for February delivery fell 62 cents to $61.39 a barrel at 12:37 p.m. on the New York Mercantile Exchange. The contract’s Thursday settlement at $62.01 was the highest close since December 2014.
Brent for March settlement lost 42 cents to $67.65 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $6.28 to March WTI.
U.S. oil output rose to 9.78 million barrels a day last week, near a record high, according to the Energy Information Administration. Gasoline inventories jumped by 4.81 million barrels and distillates increased by 8.9 million.
“There’s been a one-way, very steep and uninterrupted rally off the last minor low in mid-December near $56, so it won’t be surprising to see a pause here,” said Ric Spooner, a Sydney-based analyst at CMC Markets. “Prices are getting into shale oil country and the market may wait for evidence as to whether producers are increasing output or not.”
Supplies at Cushing, Oklahoma, the delivery point for WTI, fell to the lowest since February 2015. While WTI has surged, further gains may waver near $62.50 a barrel, just as they did in May and June of 2015, according to Spooner at CMC Markets. Technical guides are also showing the potential for a retreat with relative strength index indicating futures are likely overbought. CME Group Inc. cut the margin requirement for the WTI front-month contract to $1,950 from $2,100, according to its website.