(For Bloomberg fair value curves, see CFVL <GO>)
July 24 (Bloomberg) -- West Texas Intermediate crude fell the most in more than a month as U.S. output surged to a 22-year high last week and Chinese manufacturing contracted more than economists estimated.
Futures fell as much as 2.2 percent after the Energy Information Administration said crude production rose 0.9 percent to 7.56 million barrels a day, the most since December 1990. Crude and fuel supplies declined, the report showed. The HSBC Holdings Plc and Markit Economics China manufacturing gauge came in at 47.7, according to a preliminary survey of purchasing managers. Analysts surveyed by Bloomberg forecast 48.2.
"There were good-sized supply draws but we still have a surplus," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "We aren’t going to see a deficit anytime soon. The market has been paying a lot of attention to China recently so the weak Chinese data is also relevant."
WTI oil for September delivery slipped $2, or 1.9 percent, to $105.23 a barrel at 1:58 p.m. on the New York Mercantile Exchange, heading for the biggest decline since June 20. The volume of all futures traded was near the 100-day average for the time of day. Prices have advanced 9 percent this month and are up 15 percent this year.
Brent crude for September settlement dropped $1.59, or 1.5 percent, to $106.83 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 13 percent below the 100-day average. The European benchmark grade traded at a $1.60 premium to WTI, up from $1.19 yesterday. Brent slid below the U.S. grade in intraday trading on July 19 for the first time since August 2010.
U.S. crude production has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in the central part of the country.
Crude stockpiles decreased 29.9 million barrels in the four weeks ended July 19, the largest four-week drop in data dating to 1982, according to the EIA, the Energy Department’s statistical unit. Inventories surged to 397.6 million on May 24, the most since 1931.
Stockpiles at Cushing, Oklahoma, the delivery point for WTI, dropped 2.06 million barrels to 44 million last week, the report showed. Supplies reached a record 51.9 million barrels in the week ended Jan. 11.
Refineries operated at 92.3 percent of capacity, down 0.5 percentage point from the prior week. Utilization rates usually peak during the summer months when U.S. gasoline demand rises.
Gasoline stockpiles slid 1.39 million barrels to 222.7 million. Inventories of distillate fuel, a category that includes heating oil and diesel, fell 1.23 million barrels to 126.5 million.
Total petroleum consumption rose 1.1 percent to 19.7 million barrels a day on average over the last four weeks, the most since January 2011.
WTI climbed to $109.32 on July 19, the highest intraday level since March 2012, on signs the U.S. economy is rebounding and on falling crude inventories.
"These numbers signal that demand is pretty good and portend that we will see rosier economic growth in the months ahead," said Chip Hodge, who oversees a $9 billion natural- resource bond portfolio as senior managing director at Manulife Asset Management in Boston. "The market has had a hell of a run and it would take incredibly bullish numbers to push the market to new highs."
If the Chinese manufacturing number is confirmed in the final report Aug. 1, it would be the lowest in 11 months. Readings below 50 indicate contraction.
China was responsible for 12 percent of global oil consumption and 22 percent of total energy use in 2012, according to BP Plc’s Statistical Review of World Energy. The U.S. accounted for 20 percent of oil demand and 18 percent of total energy use last year.
"The market is sputtering after reaching 16-month highs," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. "Tighter fundamentals, signs of further global economic growth and increasing geopolitical tensions will be needed if oil is going to reach new highs."
The Standard & Poor’s 500 Index dropped 0.5 percent and the Dow Jones Industrial Average fell 0.4 percent. The Dollar Index, which tracks the currency against six others, was up 0.5 percent at 82.357 at 1:59 p.m. A stronger U.S. currency curbs the appeal of commodities as an investment. The Standard & Poor’s GSCI Index of 24 raw materials slipped 1.1 percent, led by declines in coffee and crude.
Implied volatility for at-the-money WTI options expiring in September was 22.2 percent, up from 21.4 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 443,168 contracts as of 1:59 p.m. It totaled 559,312 contracts yesterday, 16 percent above the three-month average. Open interest was 1.87 million contracts.
--With assistance from Sherry Su in London. Editors: Margot Habiby, Richard Stubbe
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