WTI oil falls most in three months on fund selling speculation

WTI dropped 2.3% in 12 minutes

West Texas Intermediate tumbled the most in three months following declines in metals on speculation that a commodity fund is selling positions.

WTI dropped 2.3 percent after sliding $1.95 in 12 minutes to $93.92 a barrel at 11:07 a.m. as trading volume surged. Silver and platinum fell with volume more than double the 100- day moving average. Oil also decreased as gasoline futures retreated for a second day from the highest level since September. U.S. oil supplies probably rose 2 million barrels last week as domestic output reached a 20-year high, according to a Bloomberg survey before a government report tomorrow.

“There is a rumor that a fund is blowing up,” Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania, said in a telephone interview. Schork has spent 17 years in physical commodity and derivatives trading including stints at Glencore Ltd. and Novarco Ltd., Marc Rich’s last venture in the global energy trading, and his clients include OPEC and major oil companies. “Metals are getting hit and it’s spreading over to oil,” he said.

WTI for March delivery, which expired today, decreased $2.20 to close at $94.46 a barrel on the New York Mercantile Exchange, the biggest one-day loss since Nov. 20 and the lowest settlement since Jan. 16. The more-active April contract slid $1.88, or 1.9 percent, to $95.22 a barrel.

The volume of all futures traded was 38 percent above the 100-day average at 4:37 p.m. Volume surged to 53 percent above the average at 11:35 a.m. from 2.9 percent below at 10:46 a.m. Open interest in WTI futures reached a record 1.67 on Feb. 13.

API Inventories

Prices were little changed after the American Petroleum Institute reported oil inventories gained 2.96 million barrels to 372.5 million last week, the highest level since Dec. 7. April futures fell $2.32 to $94.78 a barrel in electronic trading at 4:32 p.m. The contract was at $94.79 before the report was released at 4:30 p.m.

“I’m hearing about some fund liquidation but nothing concrete,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “We’re also at the expiration for the March contract. A ton of open interest has come into the market the last two weeks and there are clearly no buyers, so you are seeing an exit as investors have to roll.”

Steven Adamske, a Commodity Futures Trading Commission spokesman based in Washington, declined to comment on market fluctuations today. Chris Grams, a Chicago-based spokesman for Nymex’s owner CME Group Inc., said the company doesn’t comment on specific client activity.

Fed Minutes

Oil also fell after minutes from the Federal Reserve’s last meeting showed several policy makers said the central bank should be ready to vary the pace of their $85 billion in monthly bond purchases.

Brent for April settlement slipped $1.92, or 1.6 percent, to end the session at $115.60 a barrel on the London-based ICE Futures Europe exchange. The volume was 7.5 percent above the 100-day average.

Silver futures for March delivery tumbled 2.7 percent to settle at $28.622 an ounce on the Comex in New York. Platinum for April delivery dropped 3 percent on the Comex to $1.647.10 an ounce. Silver and platinum volumes were more than double the 100-day averages at 4:37 p.m. in New York.

“You can’t just pick on crude here because there’s a broad move away from all commodities,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We’ve had a big run-up in prices recently and sentiment is switching to risk-off. This may have been enough to get some big macro-fund to take profits.”

Dollar Climbs

The dollar climbed against major currencies, reducing the appeal of dollar-denominated commodities as an investment. The U.S. currency rose 0.8 percent against the euro and reached the highest level since 2010 against the British pound.

Prices also dropped after a Western diplomat said the five United Nations Security Council permanent members and Germany will make a new offer to Iran to resolve a dispute about its nuclear program in talks next week. The diplomat, who asked not to be more closely identified, told reporters in London today that the offer will contain significant new elements, without giving further details.

Stalled multilateral negotiations on Iran’s nuclear work are scheduled to resume Feb. 26 in Kazakhstan. The U.S. and its allies say Iran may seek to make an atomic bomb, while Iran says developments are for civilian purposes. Sanctions aimed at stopping the program have hindered its ability to export oil.

Iran Talks

“The Iran headlines have definitely knocked some of the security premium out of the price,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The dollar is higher, especially against the pound, and I’m surprised that there’s not more downward pressure on commodities.”

Gasoline for March delivery fell 6.17 cents, or 2 percent, to settle at $3.0595 a gallon on the Nymex. It ended at $3.1345 on Feb. 15, the highest level since Sept. 28.

The retail price for regular gasoline, averaged nationwide, rose to $3.766 a gallon yesterday, the highest level for this time of year in AAA data going back to 2004

“Gasoline coming off is definitely helping crude come off,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “We haven’t seen gasoline prices at these levels at this time of year ever and it deserves to come off a little bit.”

Next page: Crude Supplies

Crude Supplies

U.S. crude supplies probably rose 0.5 percent to 374.2 million barrels last week, according to the median estimate of 11 analysts surveyed by Bloomberg. It would be the longest streak of increases since May. Crude production rose to 7.06 million barrels a day in the week ended Feb. 8, the most since December 1992, according to the EIA.

The Energy Information Administration, the Energy Department’s statistical arm, is scheduled to release its weekly report at 11 a.m. tomorrow in Washington, one day later than normal because of the Presidents Day holiday on Feb. 18.

Electronic trading volume on the Nymex was 665,952 contracts as of 4:33 p.m. It totaled 575,423 contracts yesterday, 10 percent above the three-month average. Open interest was 1.65 million.

Bloomberg News

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