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Oil Declines to Six-Week Low After U.S. Inventories Advance

Feb. 21 (Bloomberg) -- West Texas Intermediate oil in New York fell to a six-week low as an industry report showed that U.S. crude supplies increased to the highest level since December.

Futures dropped as much as 2.7 percent after the American Petroleum Institute said late yesterday that stockpiles climbed 2.96 million barrels last week to 372.5 million. The Energy Information Administration is projected to report today that inventories rose 2 million barrels, according to a Bloomberg survey. Equities and commodities also dropped after the Federal Reserve signaled it may consider slowing the pace of asset purchases, according to minutes of the Jan. 29-30 meeting.

“The fundamentals are reasserting themselves,” said Julius Walker, the global energy markets strategist at UBS Securities LLC in New York. “The market will be getting looser this quarter. Production in the U.S. and elsewhere is growing strongly and that’s feeding through into higher inventories.”

WTI oil for April delivery dropped $2.18, or 2.3 percent, to $93.04 a barrel at 10:54 a.m. on the New York Mercantile Exchange. Futures touched $92.63, the lowest level since Jan. 7. The March contract expired 2.3 percent lower at $94.46 yesterday, the biggest decline since Nov. 20. The volume of all futures traded is 46 percent above the 100-day average.

Brent crude for April settlement fell $1.77, or 1.5 percent, to $113.83 a barrel on the London-based ICE Futures Europe exchange. The contract touched $113.50, the lowest level since Jan. 29. Volume was more than 71 percent more than the 100-day average.

Brent Premium

The European benchmark grade traded at a premium of $20.79 to WTI futures, compared with $20.38 yesterday. The gap expanded to $23.18 on Feb. 8, the widest since Nov. 26.

Oil is extending losses in New York after breaching technical support yesterday, according to data compiled by Bloomberg. Futures settled below $95 a barrel, the trough between a “double-top” that formed after advances stalled near $98 on Jan. 31 and Feb. 13. The price gap is about $3, signaling crude may fall to around $92 in a so-called reversal. Losses tend to accelerate when chart support fails.

The EIA, the Energy Department’s statistical arm, is scheduled to release its inventory report at 11 a.m. in Washington, a day later than usual because of the Presidents Day holiday on Feb. 18. It will probably show that gasoline supply declined 900,000 barrels, according to the median of 11 analyst responses in a Bloomberg survey.

U.S. crude production rose to 7.06 million barrels a day in the week ended Feb. 8, the most since December 1992, the EIA reported last week.

Iran Talks

U.S. gasoline stockpiles slid by 122,000 barrels last week to 232.6 million barrels, the API’s data showed. Crude supplies at Cushing, Oklahoma, the delivery point for futures traded on the New York Mercantile Exchange, increased 546,000 barrels to 50.8 million, according to the API.

Several Fed policy makers said the central bank should be ready to vary the pace of its $85 billion in monthly bond purchases, according to the minutes released late yesterday. The debt buying, known as quantitative easing, aim to keep long-term rates low and support economic growth.

“The Fed minutes yesterday were certainly spooky for commodity markets,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “They signal that quantitative easing may have an end point. This undermines a major support of the market.”

Iran Talks

Western governments will revise their offer to Iran at talks on the country’s nuclear work next week, according to France’s Foreign Ministry. Stalled multilateral negotiations on the Islamic republic’s nuclear work are scheduled to resume in Kazakhstan on Feb. 26. The last round of talks between Iran and world powers, held in Moscow in June, failed to yield results.

“We will make an updated offer that will contain new substantive elements,” the French Foreign Ministry said in an e-mail. “The approach remains that of Baghdad, that is a gradual approach that commences with confidence measures.”

Iraq’s crude oil exports rose in January for the first time since October, according to the marketing unit of the OPEC member state’s Oil Ministry.

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