West Texas Intermediate oil in New York dropped after the Energy Information Administration said U.S. crude output rose to the highest level in 20 years.
Prices declined 0.5% as production climbed to 7.06 million barrels a day last week, the most since December 1992, according to the EIA, the Energy Department’s statistical arm. Crude stockpiles rose 560,000 barrels to 372.2 million. Fuel supplies fell as demand grew to the highest level this year. Oil peaked earlier as data showed U.S. retail sales gained.
“The market is well supplied and demand is OK, although not spectacular,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “The focus will turn back to the economic growth outlook.”
Crude oil for March delivery fell 50 cents to settle at $97.01 a barrel on the New York Mercantile Exchange. Futures have declined 3.9% in the past year. The volume of all contracts traded was 34% above the 100-day average at 3:27 p.m.
Brent oil for March settlement, which expired today, rose 6 cents to $118.72 a barrel on the London-based ICE Futures Europe exchange. The more actively traded April contract increased 13 cents to end the session at $117.88. Volume was 2.7% above the 100-day average.
The European benchmark grade traded at a $21.71-a-barrel premium to WTI, up from $21.15 yesterday. The spread was $23.18 on Feb. 8, the widest level since Nov. 26.
U.S. production rose 67,000 barrels a day last week, the biggest increase since December, the report showed.
“We continue to see production gains but this has yet to translate into low prices,” said Marshall Berol, co-portfolio manager of the Encompass Fund in San Francisco, which has about $300 million in assets. “The limited impact of the production gain may be an indication that the economy is continuing to modestly pick up.”
The EIA report was projected to show a 2.2 million barrel increase in crude supplies, according to the median estimate of 10 analysts surveyed by Bloomberg.
Gasoline inventories declined 803,000 barrels to 233.2 million, according to the EIA. Stockpiles of distillate fuel, a category that includes heating oil and diesel, dropped 3.68 million barrels to 125.9 million. Refineries operated at 83.8% of capacity last week, down 0.4 percentage point from the prior week.
Total fuel consumption rose 5.5% to 19 million barrels a day last week, the most since the week ended Dec. 14, the report showed.
Retail sales in the U.S. rose for a third month in January. The 0.1% climb followed an unrevised 0.5% increase in December, Commerce Department figures showed today in Washington. The slower-paced advance, as an increase in payroll taxes took a bite out of consumers’ paychecks, matched the median forecast of 80 economists surveyed by Bloomberg.
The International Energy Agency reduced its 2013 world demand estimate by 90,000 barrels a day following a weaker growth outlook from the International Monetary Fund.
Global oil use will increase by 840,000 barrels a day in 2013, or 0.9%, to 90.7 million a day. Production among OPEC nations fell to its lowest level in a year, limiting price relief from an increase in spare production capacity, the Paris-based IEA said today in its monthly oil market report.
Futures also declined as a team of United Nations inspectors arrived in Iran to negotiate wider access to the Persian Gulf nation’s nuclear facilities.
The International Atomic Energy Agency delegation led by Herman Nackaerts is seeking a deal that would include a visit to the Parchin military site, where nuclear work may have been carried out according to intelligence reports received by the agency.
The U.S. and its allies say Iran may seek to make an atomic bomb, while Iran says it’s pursuing a civilian program. Sanctions aimed at stopping the country’s nuclear program have hindered its ability to export oil.
“Prices fell on speculation that IAEA inspectors will come to an agreement with the Iranian government, reducing tension,” said John Kilduff, a partner at Again Capital LLC, a New York- based hedge fund that focuses on energy. “The IEA report also put some downward pressure on the market because of their reduced outlook for demand.”
Oil in New York may rise to $100 a barrel as demand along the two-year moving average propels futures above technical support, according to Barclays Plc. Buyers have emerged near the $95 level, signaling that the market may test a range of $98.25 to $98.35, the bank said in an e-mailed report.
Electronic trading volume on the Nymex was 621,287 contracts as of 3:27 p.m. It totaled 684,492 contracts yesterday, 30 percent above the three-month average. Open interest was 1.65 million, the most since May 2011.