IAP ICAP

By Timothy Puko 

The U.S. oil price tumbled to a fresh six-year low on Wednesday on the latest sign of a glut in crude supplies.

The amount of crude held in the nation's commercial stockpiles unexpectedly rose last week, according to data released on Wednesday by the U.S. Energy Information Administration.

Brokers and analysts attributed the surprise increase to a rise in imports. That underscores belief that the world's largest crude exporter, Saudi Arabia, and the Organization of the Petroleum Exporting Countries will continue pumping even as prices decline.

The benchmark crude-oil price in the U.S. slid 4.3% to $40.80 a barrel, the lowest settlement on the New York Mercantile Exchange since March 2009. Brent, the global benchmark, lost $1.65, or 3.4%, to $47.16 a barrel on ICE Futures Europe, the lowest settlement since Jan. 13.

"Clearly OPEC has produced a lot more than what people expected they would," said David Meaney, portfolio manager at BP Capital LP. "U.S. producers have been amazing in their resilience."

The decline spread across markets, helping to pull down the Dow 149 points, or 0.9%, to 17362. U.S. oil-and-gas producers filled the list of the worst performers with Marathon Oil Corp. atop the list, down 5.2%. Currencies in major oil-producing countries like Russia and Norway continued their grind down compared with the dollar this week, with the Mexican peso on pace Wednesday to close at another all-time low.

Rising production in the U.S. and Saudi Arabia has overwhelmed the world market for oil, pushing prices down 55% from year-ago levels. That has crunched budgets in oil-producing nations and states, and been a win for U.S. drivers who have been paying less at the pump for gasoline.

In the weekly EIA report, average daily U.S. output fell in the week ended Aug. 14, but by only 0.5%. At 9.3 million barrels a day, U.S. output is still on track to be the highest since 1972. The decline was more than covered by the growth in imports, up 6.1% for the week to 7.6 million barrels a day, about the same as a year ago despite the fall in prices, the EIA said.

"While a renewed decline in (U.S.) drilling activity might provide some support for prices, at best they are only likely to grind a little higher over the next few years," analysts at Capital Economics said in a note to clients.

Wednesday's fall in futures was the biggest one-day percentage slide in a month; and most of it came in just 15 minutes after the EIA report, which showed crude-oil inventories grew by 2.6 million barrels last week. Analysts had predicted a 1.1 million-barrel fall.

That "got everybody by surprise," said Scott Shelton, broker at ICAP PLC. "I don't see anything good in this report."

Other recent data from the EIA and also the International Energy Agency suggest oversupply is somewhere between 500,000 and three million barrels a day world-wide and could linger for longer than what was once commonly expected. Many had thought the plunge in oil prices would force producers to spend less and cut back, but, instead, producers have found it would be more costly to slow output than it is to pump more oil from fewer, but more-efficient wells.

As more data comes out, it reinforces fears that the standoff won't end and prices won't recover any time soon, said Dean Hazelcorn, trader at the brokerage Coquest Inc. in Dallas. Citigroup Inc. issued a note Wednesday saying it is conceivable U.S. prices could revisit the 2008 low of $32.40 and that the fall is likely to keep going until U.S. shale producers get cut off from the loans and investor money that keeps them pumping.

"The market's been given zero reason to buy," Mr. Hazelcorn said.

Domestic crude inventories grew to 456.2 million barrels last week, up from 453.6 million last week, the EIA said. The EIA's weekly production figures are based on a statistical model, not reported production.

Gasoline stockpiles fell by 2.7 million barrels. Analysts had expected gasoline supplies fall by 1.4 million barrels.

Gasoline futures settled down 8.76 cents, or 5.3%, at $1.5592 a gallon.

Diesel supplies rose by 594,000 barrels, less than the 1.2-million-barrel increase that analysts had expected.

Diesel futures lost 4.06 cents, or 2.6%, to $1.518 a gallon

Georgi Kantchev

contributed to this article.

Write to Timothy Puko at tim.puko@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

August 19, 2015 15:28 ET (19:28 GMT)

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