Oil neared the lowest level since February 2009 as U.S. crude inventories surged and the Federal Reserve raised interest rates for the first time in almost a decade.
Futures fell as much as 2.1 percent in New York after Wednesday’s 4.9 percent decline. U.S. stockpiles climbed to 490.7 million last week, the highest level for this time of year since 1930, the Energy Information Administration reported. Goldman Sachs Group Inc. warned of “high risks” that oil may fall even lower as inventories swell. The Fed’s decision bolstered the dollar, diminishing the appeal of commodities denominated in the U.S. currency.
Oil is trading near levels last seen during the global financial crisis on signs a record surplus will worsen. The Organization of Petroleum Exporting Countries earlier this month effectively abandoned production limits to defend market share, while the White House on Wednesday announced its support for a deal reached by congressional leaders that would end the nation’s 40-year restrictions on crude exports.
“The Fed move is is bearish for oil,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion. “The next several months, we’ll probably see a sustained downward trend punctuated by short bursts of short covering. This will continue until we see supply decline.”
West Texas Intermediate for January delivery slipped 71 cents, or 2 percent, to $34.81 a barrel at 11:08 a.m. on the New York Mercantile Exchange. Prices have dropped 35 percent this year, set for a second annual decline.
Brent for February delivery sank 30 cents, or 0.8 percent, to $37.09 a barrel on the London-based ICE Futures Europe exchange. The January contract expired Wednesday after decreasing to $37.19, the lowest close since December 2008.
The premium of Brent, the global benchmark, to WTI widened to $1.01 after shrinking earlier amid speculation the plan to allow domestic crude to be shipped overseas may help alleviate the U.S. supply glut. The nation’s crude inventories have swelled to 130 million barrels above the five-year seasonal average, EIA data showed. Crude imports climbed 3.6 percent to 8.31 million barrels last week, the highest since September 2013.
“Clearly the news of the last couple days has been more bearish for WTI,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “There’s a recognition in the WTI market that we were a little ambitious in trying to close the gap with Brent. The highest imports in more than two years were a result of it coming in so much.”
Prices are probably low enough to choke off investment in supplies and tame the current surplus by the end of 2016, Goldman Sachs said in a report Thursday. Still, crude-storage tanks may reach their limit, pushing oil down to levels necessary to force an immediate halt to some production, the bank said.
“We still see high risks that prices may decline further, as storage continues to fill,” Damien Courvalin, a Goldman Sachs analyst in New York, said in the report.
Oil prices also declined as the dollar’s advance undercut the investment appeal of commodities. The Bloomberg Dollar Spot Index, a gauge of the U.S. currency against 10 major peers, gained 0.9 percent to a two-week high.