MW: Oil futures slump below $78 as gasoline supplies rise
By Polya Lesova & Nick Godt, MarketWatch
NEW YORK (MarketWatch) -- Crude oil futures slumped 2% on Wednesday, with a barrel trading below $78 , after the Energy Department reported an unexpected increase in gasoline supplies.
Crude oil for December delivery was down $1.60, or 2%, at $77.89 a barrel on the New York Mercantile Exchange. Oil prices had ended up 1% on Tuesday after a volatile trading session.
The United States Oil Fund (USO 39.83, -0.76, -1.87%) , the largest oil exchange-traded fund, fell 1.8%.
Crude oil inventories rose by 0.8 million barrels in the latest week, while U.S. gasoline stocks rose by 1.6 million barrels.
Analysts polled by Platts expected a build of 900,000 barrels in U.S. commercial crude stocks, and a drop of 1 million barrels in gasoline stocks.
Mixed economic reports that showed U.S. new home sales unexpectedly fell 3.6% in September while durable goods orders rose 1%, also pressured crude oil. The decline in new-home sales to a seasonally adjusted annual rate of 402,000 was well below the 438,000 pace expected by economists surveyed by MarketWatch.
The reports added some pressure on the stock market, lifting the dollar on safe-haven trades and further pressuring commodities.
"Equity markets under pressure and the stronger U.S. dollar are leading short-oriented market participants to take profit," said Carsten Fritsch, analyst at Commerzbank in Frankfurt.
European markets also traded lower for the fourth time in five sessions, while Asia markets weakened as shipping stocks and shipbuilders fell on worries about the strength of the global economy.
The dollar index (DXY 76.26, +0.12, +0.16%) , which tracks the performance of the greenback against a basket of other major currencies, recently traded at 76.263 compared with 76.149 late Tuesday.
The American Petroleum Institute reported late Tuesday a decline of 3.5 million barrels in crude inventories for the week ended Oct. 23.
"Until last week or two weeks ago, this would have caused a stronger market reaction to the upside," Fritsch said, commenting on the API data. "This didn't happen and it could signal that sentiment shifted."
Market talk this week that the OPEC oil cartel may increase production is also limiting the upside in the oil market, according to Fritsch. Several oil ministers have said in recent days that the Organization of the Petroleum Exporting Countries may raise output.
Qatar's oil minister said Tuesday that OPEC would raise output if it saw a shortage in the market, while Kuwait's oil minister said the cartel would have to hold a special meeting if oil prices reached $100 a barrel, according to Reuters.
"Given the market reaction yesterday, it's hard to imagine oil prices will rise above $80," Fritsch said. Since "speculators are long in oil, there is a risk that these investors are going to take profit and close positions. This profit-taking could lead to a stronger correction lower."
