Crude to keep falling?

West Texas Intermediate crude ended at a 17-month low before a government report that may show U.S. inventories increased last week. WTI’s discount to Brent widened.

U.S. crude (NYMEX:CLV14) inventories expanded by 2 million barrels in the week ended Oct. 3, a Bloomberg News survey showed before Energy Information Administration data tomorrow. The EIA cut its crude price forecasts today in a monthly report because of rising output and reduced demand. The Brent-WTI spread rose above $3 for the first time in four days.

“The spread is widening in anticipation of a build in inventories,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “Supply is adding pressure to WTI. We are in a downtrend here and it may accelerate.”

WTI for November delivery fell $1.49, or 1.7 percent, to $88.85 a barrel on the New York Mercantile Exchange, the lowest settlement since April 22, 2013. Volume was 19 percent above the 100-day average. WTI traded at a $3.26 discount to Brent.

Brent for November settlement declined 68 cents, or 0.7 percent, to $92.11 a barrel on the London-based ICE Futures Europe exchange, the lowest since June 2012. The volume of all futures traded was about 27 percent above the 100-day average.

Technical Indicator

Front-month Brent futures’ 14-day relative strength index was at about 25 today, data compiled by Bloomberg show. That’s a sixth day below 30, signaling the market is oversold and further losses probably can’t be sustained.

Gasoline futures lost 1.9 percent to $2.3683 a gallon, the lowest close since January 2011.

U.S. crude inventories may have climbed 0.6 percent to 358.6 million barrels in the week ended Oct. 3, according to a Bloomberg survey. Refineries reduced their utilization rate to 89 percent from 89.8 percent the previous week, the survey showed. Plants typically schedule maintenance in September and October when units move from maximizing gasoline output to producing winter fuels.

Refineries operated at 89.8 percent of capacity in the week ended Sept. 26, according to EIA. That was the first time the rate fell below 90 percent since June.

“If we see a build in crude tomorrow and refinery runs down, the spread will widen further,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston.

EIA Forecasts

WTI will average $94.58 a barrel in 2015 versus the September projection of $94.67, the EIA said today in its monthly Short-Term Energy Outlook. The agency trimmed its Brent crude forecast for next year to $101.67 from $103.

The Energy Department’s statistical arm forecast U.S. production of 8.54 million barrels a day this year, up from 7.45 million last year, and 9.5 million in 2015, the most since 1970. This year’s projection was revised up 10,000 from the September report, while the 2015 forecast was reduced 30,000.

The world economy will grow 3.8 percent next year, compared with a July forecast for 4 percent, after a 3.3 percent expansion this year, the Washington-based International Monetary Fund said today.

“The dire economic condition is really worsening,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market is worried about the global economy and that’s where the selling pressure is from. The EIA’s been saying that production is kind of outpacing demand.”

Biggest Decline

German industrial production, adjusted for seasonal swings, dropped 4 percent in August, the Economy Ministry in Berlin said today. That’s the biggest decline since January 2009 and compares with a median estimate of 1.5 percent in a Bloomberg News survey.

“The IMF report suggests more economic weakness, and more economic weakness means demand stays soft,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis.

Hedge funds cut bullish bets on Brent crude to the lowest level in three years. Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 36,704 lots in the week to Sept. 30, ICE said today in its weekly Commitments of Traders report. That’s the lowest since Oct. 4, 2011. The data were delayed from yesterday because of an over-statement of open interest levels which the exchange is investigating, ICE said.

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