Crude oil prices pared early losses but still settled lower on Thursday after a government report showed the biggest build in U.S. crude inventory in at least 14 years.
The spread between WTI and global benchmark Brent
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U.S. crude closed down $1.47 at $46.31. Brent closed at $48.52 a barrel after falling 51 cents.
The Energy Information Administration dropped a bombshell on the markets when it announced a 10.1 million barrel build in U.S. crude inventory, the largest weekly increase in at least 14 years.
"The magnitude of the build in crude came as a surprise," said Andrew Lipow, president of Lipow Oil Associates.
U.S. crude stocks are now at their highest level for the season in at least 80 years, according to EIA data. Traders had predicted a build of only 2.6 million barrels, according to a Reuters poll.
The inventory build included a 2.91-million-barrel rise at Cushing, Oklahoma, the delivery point of the U.S. crude contract.
On Thursday, the March 2016 oil contract was trading at a premium of $8.62 a barrel to front month March 2015, an increase of $1 from the previous day. The deepening of the contango was the largest one-day increase since the end of November.
The U.S. supply glut has been a major contributing factor to the 60 percent decline in oil prices over the past several months.
The market pared some losses before closing, as futures for U.S. gasoline rose 0.5 percent. This increase may signal the beginning of the typical uptick in gasoline demand that occurs in spring, said Oliver Sloup, director of managed futures at iitrader.com LLC.
"We're right around the corner to that season where there's going to be an uptick in demand," Sloup said.
Elsewhere, the resignation of Yemen President Abd-Rabbu Mansour Hadi called the country's output into question yet had little effect upon the markets.
"The world feels like it is so awash in crude oil that the events in Yemen would do little to correct the crude oil oversupply problem," Lipow said.
A new quantitative easing plan announced by the European Central Bank raises hopes of increased demand in Europe, said Tony Headrick of CHS Hedging LLC. But the more immediate effect will be a strengthening dollar, which will be an additional headwind for oil markets, he said.
The dollar index was up 1.33 percent by market close on support from the ECB statement, an expected U.S. interest rate hike and a growing U.S. economy.
(By Samantha Sunne; Additional reporting by Jack Stubbs and David Sheppard in London and Henning Gloystein in Singapore,; Editing by Jessica Resnick-Ault, Michael Urquhart, William Hardy and Diane Craft)
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