Oil Has Biggest 2-Day Drop Since January

Oil Has Biggest 2-Day Drop Since January on U.S. Supply Report

By Mark Shenk

Nov. 28 (Bloomberg) -- Crude oil fell, reaching its biggest two-day drop since January, as a U.S. government report showed that supplies declined less than expected.

Stockpiles fell 452,000 barrels to 313.2 million last week, according to the Energy Department. Supplies at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored, rose 665,000 barrels to 15.2 million. Refineries operated at 89.4 percent of capacity, the highest since the week ended Sept. 14, the report showed.

``Crude-oil stocks didn't fall as much as expected and there was actually a big build in Cushing,'' said Tom Bentz, a broker at BNP Paribas in New York. ``Crude stocks should have fallen much further because refinery runs were up sharply. The refinery number points to increased product output in the weeks ahead.''

Crude oil for January delivery fell $3.80, or 4 percent, to settle at $90.62 a barrel at 2:45 p.m. on the New York Mercantile Exchange. It was the lowest close since Oct. 30. Futures reached $99.29 on Nov. 21, the highest intraday price since trading began in 1983. Prices are up 49 percent from a year ago.

Oil fell 7.2 percent in the past two days, the most since Jan. 3-4 when prices plunged 8.9 percent on mild weather in the northern U.S.

Brent crude oil for January settlement declined $2.71, or 2.9 percent, to close at $89.81 a barrel on the London-based ICE Futures Europe exchange. Brent reached $96.65 a barrel on Nov. 26, the highest since trading began in 1988.

``We started moving lower a few days ago when a lot of people were surprised we didn't break through $100,'' Bentz said. ``We are now heading for the $90 area.''

Stockpiles of crude oil in the week ended Nov. 23 were 3 percent above the five-year average for the period, the Energy Department said.

Refinery Maintenance

Refiners usually start units in November that were shut during September and October to make repairs after the summer driving season and before heating demand picks up.

``The market movement reflects how bearish this report was,'' said Eric Wittenauer, an analyst at A.G. Edwards & Sons Inc. in St. Louis. ``The crude drop was less than expected, gasoline stocks rose more than expected and there was a weak draw in distillate supplies.''

Total implied fuel demand averaged 20.9 million barrels a day last week, down 2.3 percent from the prior week, according to the Energy Department. Consumption of distillate fuel, which includes heating oil and diesel, fell 5.9 percent to an average 4.33 million barrels a day. The department measures shipments from refineries, pipelines and terminals to calculate demand.

January Options

Bets that January crude oil will fall below $80 a barrel were the most actively traded options contracts on the Nymex today. The put contracts, which represent the right to sell oil at that price, rose 7 cents to 18 cents, or $180 per contract, according to data compiled by Bloomberg as of 2:40 p.m. New York time. One options contract is for 1,000 barrels of oil.

The Organization of Petroleum Exporting Countries has no plan to raise oil output when it meets next week in Abu Dhabi because the market is well supplied, Qatar's oil minister said today. Libya's top oil official said the group is unable to increase production any further.

``I have not been informed of any plan,'' Qatar's Abdullah bin Hamad al-Attiyah said in a telephone interview today. ``It seems to be that the market has reacted to physical supply as it has already dropped at the beginning of winter time.''

Al-Attiyah said OPEC would make its decision based on the supply and demand outlook and economic forecasts. ``Next week we will look at expectations of a slowdown for the first quarter demand. At the moment, we don't see any panic on the supply side.''

Past Agreement

OPEC agreed at a Sept. 11 meeting in Vienna that the 10 members of the group with production targets, all except Angola and Iraq, would increase output by 500,000 barrels a day to 27.253 million barrels starting Nov. 1. Members were concerned that high energy prices might slow economic growth.

``There is no relationship between the fundamentals today and the price,'' Saudi Arabian Oil Minister Ali al-Naimi said at a conference in Singapore today. ``There is a mismatch and anyone that tells you otherwise is wrong.''


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