U.S. oil prices had their worst day since March, falling to their second lowest level of the year after U.S. data showed an unexpected increase in oil stockpiles.
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U.S. crude inventories rose by nearly 3.3 million barrels last week, according to the U.S. Energy Information Administration -- the first weekly increase since March 31. Analysts and traders surveyed by The Wall Street Journal were anticipating a 3.5 million barrel decrease in the amount of oil in U.S. storage tanks.
The unexpected buildup of supplies shook an already anxious market. Investors, many of whom have been burned by oil's bumpy ride to recovery, have been watching the U.S. storage figures each week for signs that the glut that has weighed on the market for nearly three years is dissipating.
U.S. crude futures fell $2.47, or 5.1%, to $45.72 a barrel. It was the biggest single day decline since March 8. Brent, the global benchmark, fell $2.06, or 4.1%, to $48.06 -- their lowest level since before the Organization of the Petroleum Exporting Countries and other major producers struck an agreement to cut output in November.
Major selloffs have become a regular feature of the oil market in recent months as traders and investors try to gauge whether OPEC's efforts are working.
Prices have been languishing since OPEC and other major producers, including Russia, said they would extend their pact to reduce output by 1.8 million barrels a day for another nine months, but didn't agree to deeper reductions that many market participants were hoping for. Even the eight consecutive weeks of oil being drained from U.S. storage tanks hasn't been enough to convince increasingly skeptical investors that OPEC's efforts would be enough to bring supplies back into balance with demand.
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The unexpected increase in stockpiles spooked many market participants, raising doubts both about OPEC's effectiveness and the strength of U.S. demand for oil and fuel.
"It's continuing to ratchet up fears that 1.8 million barrels over nine months isn't enough to rebalance markets," said Gene McGillian, research manager at Tradition Energy.
The increase in oil stockpiles last week was driven by an uptick in imports, a decrease in exports and a pullback by refiners, which churned less oil into fuel last week.
"It's a crummy report," said John Saucer, vice president of research and analysis at Mobius Risk Group. "It's a divergence from what we've been seeing, and it causes people to regroup and rethink."
Still, some investors said the increase may prove to be an anomaly.
"It does not mean we should dismiss the past six or eight weeks we've been seeing of draws," said Greg Sharenow, portfolio manager at Pacific Investment Management Co. "We could well have to overshoot before we find our footing."
Gasoline stockpiles also grew last week, breaking a four-week streak of declines with a 3.3 million barrel increase. The increase, which comes in the first full week of the summer driving season, is raising fears that demand will be tepid this summer and that U.S. drivers won't be of much help bringing down bloated stocks of oil and fuel.
"This is a pseudo disaster this early in refining season," said Bob Yawger, director of the futures division of Mizuho Securities USA.
If more gasoline is going into storage rather than into vehicles, refiners are likely to continue throttling back, buying less crude oil to make into fuel.
"The whole thing is a vicious cycle that is not really leaving a lot of room for upside," Mr. Yawger said.
Gasoline futures fell 6.32 cents, or 4.1%, to $1.4913 a gallon -- the largest daily decline since September. Diesel futures fell 5 cents, or 3.4%, to $1.416 a gallon.
--Neanda Salvaterra contributed to this article.
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(END) Dow Jones Newswires
June 07, 2017 16:38 ET (20:38 GMT)