Yellen comments point to rate hike; U.S. supply up 10th week ahead of OPEC meeting
U.S. oil futures sank under $40 a barrel on Wednesday and Brent oil plunged to nearly seven-year low after U.S. government data revealed a 10th straight weekly climb in crude supplies and comments from Federal Reserve Chairwoman Janet Yellen pointed toward an interest-rate hike by the central bank later this month.
The weekly increase in crude stockpiles contributed further to a global glut of supplies and the stronger likelihood of a rate hike boosted the dollar, pressuring prices for oil. In a speech Wednesday, Yellen voiced support for a rate increase at the central bank’s meeting in two weeks.
January West Texas Intermediate crude CLF6, +1.18% dropped $1.91, or 4.6%, to settle at $39.94 a barrel on the New York Mercantile Exchange. The settlement was the lowest since Aug. 26, based on the most-active contracts.
Paris Climate Talks: Pacific Islands Demand HelpAt COP21 in Paris, small island nations are calling for a tougher climate change agreement. What are they asking for? Why could "loss and damage" become a polarizing issue? WSJ's Jason Bellini has #TheShortAnswer.
The American Petroleum Institute reported late Tuesday that the U.S. crude inventories rose 1.6 million barrels last week, but analysts surveyed by Platts showed a forecast for a 1.2 million-barrel decline.
Companies are required to report data to the EIA, while reporting to the API is voluntary.
Seeing an increase “in an end-of-year destocking season was a surprise,” said John Macaluso, an analyst at Tyche Capital Advisors.
The EIA also reported total weekly oil output rose 37,000 barrels a day to 9.2 million barrels a day.
Gasoline supplies climbed by 100,000 barrels, while distillate stockpiles rose 3.1 million barrels last week, according to the EIA. The Platts survey showed stockpile expectations for a rise of 130,000 barrels for gasoline and an increase of 100,000 barrels for distillates, which include heating oil.
On Nymex, January gasoline RBF6, +1.31% fell 7 cents, or 5.1%, to $1.293 a gallon and January heating oil HOF6, +1.74% shed 6.4 cents, or 4.7%, to $1.305 a gallon.
January natural gas NGF16, -0.28% also ended down 6.6 cents, or 3%, at $2.165 per million British thermal units.
Both WTI and Brent oil prices saw a very brief spike in the minutes ahead of Wednesday morning’s supply report. The spike followed a report suggesting the Organization of the Petroleum Exporting Countries had agreed to reduce output.
However, the report, which cites comments from an Iranian official, said the agreement does not include Saudi Arabia and Persian Gulf Arab countries.
After going beyond the headline, traders “quickly realized that a production cut without Saudi Arabia is not really a production cut at all,” said Phil Flynn, senior market analyst at Price Futures Group.
Read: Don’t expect Saudi Arabia to back down when OPEC meets
Macaluso said that “with prospects like Libya, Iran and Indonesia (to be once again accepted as an OPEC member) expected to increase production, Saudi’s main interest is to maintain the lion’s share of the market.”
Read: Is Saudi Arabia about to boost oil prices?
Analysts at Wood Mackenzie believe that OPEC will likely maintain its production ceiling at the current level or adjust it “upward slightly” to reflect Indonesia’s rejoining the group.
Meanwhile, the monthly U.S. jobs report is due Friday. That could also strengthen prospects for the rate hike this month and provide a further lift for the dollar.