West Texas Intermediate oil fell Wednesday to an eight-month low after U.S. crude stockpiles fell less than analysts projected in a government report. Brent dropped to the least since April 2013.

Crude inventories fell 972,000 barrels to 358.6 million last week, the Energy Information Administration said. A 1.5 million-barrel supply drop was projected by analysts surveyed by Bloomberg. WTI and Brent were down before the report’s release on speculation that slowing economic growth will curb global fuel demand. OPEC cut forecasts for the amount of crude it will need to pump by the most in three years as U.S. output surges.

“The drop accelerated because of the smaller-than expected crude draw,” Adam Wise, who helps run a $6 billion oil and gas bond portfolio as a managing director at John Hancock in Boston, said by phone. “OPEC cut the future demand estimate for their crude earlier Wednesday. The reason for that revision was the increase in supply elsewhere, mostly in North America.”

WTI for October delivery dropped $1.08, or 1.2 percent, to settle at $91.67 a barrel on the New York Mercantile Exchange. It was the lowest close since Jan 9. The volume of all futures traded was 31 percent above the 100-day average at 2:49 p.m.

Brent for October settlement fell $1.12, or 1.1 percent, to end the session at $98.04 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since April 17, 2013. Volumes were 43 percent higher than the 100-day average. Brent closed at a $6.37 premium to WTI, the least since Aug. 20.

The European benchmark crude has moved into a structure called contango, where immediate prices are cheaper than later on, while the reverse is true for WTI.

“I’m looking at the $85-$90 area as a floor for WTI,” Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $120 billion of assets, said by phone. “There’s a little more pressure on Brent because there’s a $3 contango between the front contract and those for April and May delivery. That’s enough to encourage the buying of barrels for storage in tankers, altering the supply equation.”

Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI traded in New York, rose 78,000 barrels to 20.4 million last week, according to the EIA, the Energy Department’s statistical arm. It was the fifth increase in six weeks.

Refineries processed 16.3 million barrels a day of crude oil, down from 16.4 million the previous week. Refineries operated at 93.9 percent of their capacity, up 0.6 percentage point from Aug. 29.

Gasoline inventories rose 2.38 million barrels to 212.4 million in the week ended Sept. 5, the EIA data showed. Analysts surveyed by Bloomberg were split over whether supplies would increase or decline.

Stockpiles of distillate fuel, a category that includes diesel and heating oil, climbed 4.09 million barrels to 127.5 million, the highest level in almost a year. A 1 million-barrel gain was projected in the Bloomberg survey.

October gasoline futures declined 2.19 cents, or 0.9 percent, to close at $2.5265 a gallon on the Nymex. It was the lowest settlement since Nov. 7.

Gasoline pump prices fell 0.5 cent to $3.428 a gallon nationwide Tuesday, the least since Feb. 24, according to AAA, the largest U.S. motoring group. In Houston Wednesday, the average was $3.211 a gallon, down from $3.216 Tuesday.

Ultra low sulfur diesel for October delivery fell 3.82 cents, or 1.4 percent, to settle at $2.7533 a gallon. It was the lowest close since April 17, 2013.

U.S. crude output is projected to climb 1 million barrels a day to 9.53 million next year, the most since 1970, Adam Sieminski, the administrator of the EIA, said in a statement Tuesday. The agency forecast output of 8.53 million barrels a day this year, up from 7.45 million in 2013, said in its monthly Short-Term Energy Outlook Tuesday.

Horizontal drilling and hydraulic fracturing, or fracking, have unlocked supplies in shale formations in North Dakota, Texas and other states. U.S. crude production jumped to 8.6 million barrels a day in August, the most since July 1986. Those gains have prompted calls for lifting the U.S. ban on crude exports, including one yesterday from Larry Summers, formerly the top economic adviser to President Barack Obama.

“Production is overwhelming demand,” Wise said. “Refineries continue to operate at extremely high rates to produce as much diesel and other fuel as they can for export. Refiners will struggle to handle the rise in output.”

WTI will average $94.67 a barrel in 2015 versus the August projection of $96.08, according to Tuesday’s EIA report. The agency also trimmed its Brent estimate for next year to $103 a barrel from $105.

The Organization of the Petroleum Exporting Countries expects it will need to pump an average of 29.2 million barrels a day of crude in 2015, about 200,000 a day less than it forecast in August. The group boosted estimates for supplies from countries outside OPEC by the same amount in today’s monthly report. The change implies OPEC will need to cut output by about 1.1 million barrels a day from the 30.3 million it produced last month.

Also Wednesday, natural gas futures slipped for the first time in three days as meteorologists predicted mild weather that would cut demand for the heating and power-plant fuel.

Natural gas for October delivery fell 3 cents, or 0.8 percent, to settle at $3.954 per million British thermal units on the New York Mercantile Exchange.

Sourced from Fuelfix.com on September 11th, 2014.