Soaring Inventories Hamper Oil

Published on Wednesday, 02 May 2012 17:22 Written by Todd Shriber

New York, May 2^nd (TradersHuddle.com) – Oil had spent the past several days reacting reasonably well to various data points, but that was not the case on Wednesday as crude futures fell amid surging U.S. inventories data. NYMEX-traded crude for June delivery fell a one-month high set on Tuesday, losing 94 cents, or 0.9%, to settle at $105.22 a barrel. In London, Brent crude for June delivery lost $1.46, or 1.2%, to end the day at $118.20 a barrel.

Crude was held back by news that U.S. oil stocks jumped by 2.8 million barrels in the week ended April 27. That’s the 19th highest level on record and the highest level since 1990, according to the Wall Street Journal. Inventories at the Cushing, Oklahoma storage facility now rest at 43 million barrels, according to the U.S. Energy Information Administration.

If there’s a silver lining to rising U.S. inventories, it is this: It means the U.S., the world’s largest oil consumer, is producing more of its own oil, thereby reducing dependence on foreign imports. EIA data show crude-oil output of 6.121 million barrels a day last week, up 8.9%, or about 500,000 barrels a day, above a year ago and the most since November 1999, the Journal reported. Year-to-date, U.S. crude output is also higher than where it was at the same time last year.

Natural gas futures pulled back today, snapping a multi-day winning streak for that commodity. In heavy trade, the United States Natural Gas Fund (NYSE: UNG) lost 4.3%. The First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG) slid almost 4%, ending a seven-day winning streak, on volume that was about 75% above the daily average.

Oil and other commodities were also held back by some weak U.S. economic data points. The ADP Employer Services survey showed non-government employers added just 119,000 new jobs last month, well below the 170,000 new jobs economists expected. The Labor Department reports its April non-farm payroll number on Friday and economists are expecting a reading of 160,000 new jobs.

The Commerce Department said factory orders fell 1.5% in March compared to a 1.1% gain in February. Economists expected a 1.6% decline in March. That data point combined with the rising inventories number may be another sign that oil demand is not quite where it should be at this point in a economic recovery.

In earnings news, shares of Marathon Oil (NYSE: MRO) plunged 4.3% on volume that was well above the daily average after the company said its first-quarter profit slid 58% following the spinoff of its downstream business last year. First-quarter production excluding Libya was 371,000 barrels of oil equivalent per day, 1% below the company’s fourth-quarter output.