NYMEX December crude futures settled 94 cents lower at $85.73/barrel Wednesday, dipping on a larger-than-expected rise in US crude stocks last week, while the geopolitical risk premium remained sidelined.
December crude fell to $84.94/b in midday trade -- the front-month contract's lowest level since July 12. Products prices also fell, with November heating oil settling down 40 points at $3.0394/gal and November RBOB ending 20 points lower at $2.6030/gal.
ICE December Brent settled 40 cents lower at $107.85/b.
US Energy Information Administration data on Wednesday showed that crude stocks jumped 5.896 million barrels to 375.126 million barrels for the reporting week ending October 19, outpacing analyst expectations of a 1.7 million-barrel build. The build came amid a 476,000 b/d surge in US crude imports to 8.823 million b/d, which was centered in the US Gulf Coast.
Late Tuesday, the American Petroleum Institute reported a moderate 313,000-barrel increase in US crude stocks last week, but also noted that crude stocks in the Gulf Coast were up by about 3 million barrels.
The EIA build put US crude stocks 12.2% above the five-year average. The surplus to the five-year average has climbed from 6% the week ending August 31, as crude stocks have risen 18 million barrels over the period.
Mike Guido, managing director of energy markets at Macquarie, said refineries in the US Gulf Coast that have returned from maintenance this week were not included in the data for the week ended October 19, leaving a bearish tone in the market.
"So refinery runs were unchanged [in the latest EIA report], there were large imports and a nice big build in the Gulf Coast. We have a problem now where the oversupply in the US is starting to impact price action in the market," Guido said.
In addition, Guido noted that NYMEX crude futures have seen an aggressive technical breakdown since mid-October, where the front-month contract has fallen more than 8% from a high of $93.66/b on October 10.
With geopolitical risk premium pushed to the sidelines, Guido said the market will have to start to see the seasonal return of refineries in the US to slow the pace of selling in crude futures.
Futures were also impacted by a bearish macroeconomic picture after German business confidence dropped to its lowest level in 2.5 years. Also in Germany, the manufacturing PMI fell to 45.7 from 47.4 the prior month.
The data sent the euro below the key $1.30 level, weighing on the oil complex, and by the NYMEX close, it was trading down 15 points at $1.2971.
In addition, a preliminary reading of China's October manufacturing PMI, which was better than expected, was taken by some in the marketplace as bearish.
"Recent improvements in data for manufacturing, industrial production, retail sales and fixed asset investment in China have probably reduced the likelihood of further rate cuts by the [People's Bank of China] in the near term, and this realization is weighing on sentiment," said analyst Addison Armstrong of Tradition Energy in a note.
