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Oil Tumbles as Surprise Stockpile Surge Outweighs Platform Woes

  • Shell shuts Enchilada platform in Gulf of Mexico Wednesday
  • U.S. drillers lift crude production to an all-time high: EIA

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 pulled prices back down.

Oil closed 0.7 percent lower in New York after alternating between gains and losses in the session. Multiple platforms in the Gulf of Mexico suspended operations after Royal Dutch Shell Plc shut its Enchilada-Salsa platform due to a fire. While the shutdowns caused shortages, the prevailing mood was set by a government report showing crude stockpiles unexpectedly rose last week, overseas demand shrank and U.S. output 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.”

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.

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.

West Texas Intermediate for December delivery slipped 39 cents to settle at $56.81 a barrel on the New York Mercantile Exchange, after rising to an intraday high of $57.92 a barrel.

Brent for January settlement edged lower by 20 cents to end the session at $63.49 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $6.44 to January WTI.

Spooking the Market

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.”

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.

About 81,000 barrels a day of U.S. Gulf oil production is shut in after the fire at Shell’s Enchilada-Salsa platform, according to the Bureau of Safety and Environmental Enforcement. Shell also shut its Auger platform, while Anadarko Petroleum Corp. was said to close its nearby Conger field as a result. ConocoPhillips and Hess Corp. also shut platforms.

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.
  • Federal investigators have issued subpoenas for information on Carl Icahn’s efforts to change biofuel policy while serving as an informal adviser to President Donald Trump, according to regulatory filings.

— With assistance by Ben Sharples, and Grant Smith

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