Crude Goes on Wild Ride as Stockpile Surge Outweighs Platform Shutdowns

Aerial view of the Auger Tension Leg Platform in the deep-water US Gulf of Mexico in foreground. Noble Jim Thompson drilling rig in background. Photo credit: Royal Dutch Shell

By Jessica Summers (Bloomberg) — Crude went on a roller-coaster ride Wednesday as platform closures in the Gulf of Mexico led futures to spike, while the stubborn increase in U.S. supplies pushed prices down.

Oil traded 0.7 percent lower in New York after rising as much as 1.3 percent. Royal Dutch Shell Plc shut its Enchilada-Salsa and Auger platforms, and Anadarko Petroleum Corp. was said to close its nearby Conger field as a result. While the shutdowns caused significant shortages, the prevailing mood was set by a report showing crude stockpiles unexpectedly rose, overseas demand shrank and output from American wells hit a record-high.

“We’re getting these wild price gyrations here. Between the domestic production number and crude oil number it was a bearish report,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. Yet, the platform closures were “good enough to get the market from the red to the green.”

See: Shell’s Enchilada Platform Evacuated Due to Fire

As investors gear up for a crucial Nov. 30 gathering of the Organization of Petroleum Exporting Countries, Citigroup Inc. warned that oil bulls expecting an extension of historic supply curbs might be disappointed.

Just yesterday, OPEC itself said U.S. shale output will continue to grow and may not max out until the middle of the next decade. ConocoPhillips announced a surprise 22 percent increase in next year’s drilling budget, the latest signal that U.S. output may not ebb any time soon.

The production surge provided “a little bit of a spook to the market,” Rob Thummel, managing director at Tortoise Capital Advisors LLC, which handles $16 billion in energy-related assets, said by telephone. “Everybody is coming to the realization that shale is here to stay.”

West Texas Intermediate for December delivery slipped 28 cents to $56.92 a barrel at 1:04 p.m. on the New York Mercantile Exchange, after earlier rising to as high as $57.92 a barrel.

Brent for January settlement edged lower by 23 cents to $63.46 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $6.35 to January WTI.

Output from U.S. oil wells climbed by 0.7 percent last week to 9.62 million barrels a day, the highest seven-day figure since federal officials began tracking weekly data in 1983.

Crude stockpiles climbed to 457.1 million barrels last week, while inventories at the key Cushing, Oklahoma, pipeline hub rose by 720,000 barrels to the highest level since May, according to the Energy Information Administration. Crude exports fell by 1.26 million barrels a day. Meanwhile, gasoline stockpiles declined to the lowest level since November 2014 and distillate stocks were at the lowest since March 2015.

Oil-market news:

Venezuela and Russia have agreed on terms for restructuring about $3 billion of the Latin American country’s debt and the deal will come soon, Finance Minister Anton Siluanov said in Moscow. U.S. West Texas Intermediate oil at $60 will encourage hedging and spur shale producers to boost production by as much as 1.5 million barrels a day in the second half of 2018, leading to lower prices in 2019, said Fereidun Fesharaki, chairman of industry consultant FGE.

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