Crude tumbles after shock increases in stored oil and production

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NEW YORK (Bloomberg) — Traders dumped oil futures after a surprise increase in U.S. crude stockpiles and surging output dashed confidence that a worldwide glut is fading.

Oil fell as much as 1.4% in New York after a U.S. government report on Wednesday found swelling crude stockpiles, shrinking overseas demand and skyrocketing output from American wells. The futures were on track for the first two-day decline in more than a month. Earlier in the day, ConocoPhillips announced a surprise 22% 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.”

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.

Despite the two-day decline in oil prices, shale explorers have been emboldened to expand drilling this year as crude recovered from the doldrums of the 3-year rout.

“The U.S. shale machine is poised to shift up a gear as producers make hay amid the healthier price backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.

West Texas Intermediate for December delivery slipped 64 cents to $56.56/bbl at 10:43 a.m. on the New York Mercantile Exchange. The contract reached a 28-month high earlier this week.

Brent for January settlement declined 64 cents to $63.05 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $6.28 to January WTI.

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

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

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