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U.S. crude falls below $42 amid inventory build, bearish OPEC forecasts

Published 11/12/2015, 02:19 PM
Updated 11/12/2015, 02:33 PM
WTI crude closed below $42 on Thursday, while brent crude closed under $46

Investing.com -- U.S. crude futures fell sharply on Thursday, as a stronger than expected inventory build last week and bearish supply forecasts from OPEC sent prices crashing down to their lowest level since late-August.

On the New York Mercantile Exchange, WTI crude for December delivery traded between $41.66 and $43.32 a barrel, before settling at $41.78, down 1.14 or 2.67% on the session. It marked the first time the front month contract for U.S. crude futures slipped below $42 a barrel since Aug. 28. Texas Long Sweet futures have closed in the red in six of the last seven sessions. During that span, WTI crude has fallen by at least 2% in five separate trading days.

On the Intercontinental Exchange (ICE), brent crude for January delivery wavered between $45.29 and $47.07 a barrel, before closing at $45.21, down 1.40 or 3.00% on the day. North Sea brent futures have also closed lower in six of the last seven trading days. Since surging above $53 a barrel on October 12, brent futures have tumbled by more than 13%.

On Thursday morning, the U.S. Energy Information Administration (EIA) said in its Weekly Petroleum Report that crude inventories nationwide increased by 4.2 million barrels for the week ending November 6. At 487.0 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. While analysts only anticipated a slight build of 0.75 million barrels, investors anticipated a much sharper increase after the American Petroleum Institute reported a weekly gain of 6.3 million barrels on Tuesday evening.

Within the report, motor gas inventories decreased by 2.1 million barrels while distillate fuel inventories increased by 0.4 million last week. Meanwhile, crude production for the week increased by 25,000 barrels per day to 9.185 million. Crude output still remains considerably below its level from this spring when it surged above 9.6 million bpd to reach its highest level in more than 40 years.

The report was issued one day later than usual this week due to the Veterans Day holiday.

Elsewhere, OPEC said in its monthly report for October that its production fell to 31.38 million bpd last month, down by 256,000 bpd from its September level. It marked the first decline in OPEC since March. Saudi Arabia, the world's largest exporter of crude, increased supply moderately by 50,000 bpd. More critically, OPEC forecast that supply from rival producers in 2016 will decline next year, providing some indications that its long-term strategy aimed at regaining market share is working. Next year, the world's largest oil cartel estimates that production from non-OPEC members will plunge by 130,000 bpd, representing their first annual decline since 2007. Crude prices are down by more than 45% since OPEC rattled global energy markets with its decision last November to leave its production ceiling above 30 million bpd. The strategy triggered a prolonged battle with U.S. shale producers for market share, flooding energy markets with a glut of oversupply.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, stood at 98.78 in U.S. afternoon trading, down 0.28% on the session. On Tuesday, the index surged more than 0.3% to 99.60, reaching a fresh seven-month high.

Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.

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