Oil price falls on surprise climb in U.S. crude supplies

The price of oil fell to its lowest closing price in almost 61/2 years Wednesday on new data showing that U.S. crude inventories rose at a time of year when they typically decline.

Crude prices dropped $1.82 to $40.80 a barrel in New York, their lowest close since March 2, 2009. They have fallen by more than half in the last year.

Shares of the world’s biggest oil companies, like Exxon Mobil, BP and Marathon Oil, were battered by the decline in prices and a report from the Energy Information Administration that commercial inventories increased by 2.6 million barrels last week.

Oil supplies typically decline in spring and summer because refiners make more gasoline to meet driving demand in the summer. Instead, the report jolted analysts who have seen the price of oil plunge because there’s too much on the market and too little demand.

Oil could fall to lows last seen during the global financial crisis amid a persistent surplus, according to Citigroup, Bloomberg News reported.

“Balances point to further oversupply throughout 2015 begging the question how low can oil go,” Citigroup analysts led by Seth Kleinman said in an emailed report Wednesday. A domestic crude oil price of $32.40 a barrel reached in 2008 “is a conceivable reality.”

Prices may keep falling, even below producers’ operating costs, without forcing cutbacks in output, the bank said. Shutting down production is costly and can be permanent, which makes “high-end costs a tentative floor which can easily be breached,” the bank said.

U.S. shale oil production will eventually respond to low prices, with access to finance dwindling as “capital markets are getting nervy,” Citigroup said.

Energy companies invested heavily in drilling over the past few years, when the price of oil was generally over $100 a barrel. A combination of increasing supplies and slow growth in the world economy, including weaker growth in China and a shrinking economy in Japan, cut into demand and made for a big drop in prices in the second half of 2014.

That trend resumed this summer, and energy companies have slashed jobs and curtailed drilling.

Marathon Oil Corp. was the biggest loser on the Standard & Poor’s 500, suffering a 7.2 percent drop. The shares recovered from a session low that took them to their lowest prices in six years.

Chevron Corp. shares lost 3 percent and ConocoPhillips fell 3.7 percent, while Exxon Mobil Corp. declined 2.1 percent. All reached three- or four-year lows.

The Energy Information Administration said commercial inventories had 456 million barrels as of Friday. That total has fallen the last few months, as it normally does. Still, inventories usually aren’t this high in the summer. The administration says commercial crude inventories are at their highest seasonal levels in at least 80 years.

Analyst Thomas Pugh of Capital Economics said the main reason for the increase in inventories was refinery outages for maintenance and other issues. He said oil production continues to drop and gasoline stocks fell more than expected, which shows demand is high.

“The bigger picture is one of strong demand for gasoline and falling oil output, which should give some support to prices over the rest of the year,” Pugh said. He expects oil to finish the year at $50 a barrel.

This report includes material from The Associated Press and Bloomberg News.

This story was originally published August 19, 2015 at 5:58 PM with the headline "Oil price falls on surprise climb in U.S. crude supplies."