Crude prices fell again on Monday, staying under pressure after two straight weeks of losses, on worries that the oversupply in oil products would swell from unseasonably warm weather and the waning maintenance cycle for U.S. refineries.
Influential Wall Street trading house Goldman Sachs warned of downside risk for oil prices through spring 2016 as U.S. and European storage utilization for distillates, which include diesel, neared historic highs.
Traders said that as refined oil product storage tanks filled up, unwanted diesel and jet fuel cargoes were backing up outside Europe’s ports and taking longer, slower routes around the southern tip of Africa.
“There’s talk in the market about ULSD (ultra low sulfur diesel) storage potentially reaching ‘tank tops’, and that’s weighing on crude,” said Dave Thompson of Washington-based broker Powerhouse.
Brent, the global benchmark for crude, settled down 45 cents, or almost 1 percent, at $47.54 a barrel.
U.S. crude closed down 62 cents, or 1.4 percent, at $43.98.
Both crude benchmarks have lost about 10 percent over the past two weeks.
Among refined products, New York’s ULSD settled down 2 percent while London’s gasoil lost about 1 percent.
U.S. refinery runs rose in the week to Oct. 16, after a four-week drop due to the autumn maintenance cycle. It was a sign the market will see even more oil products than required, analysts said.
A Reuters poll of analysts, however, forecast U.S. crude stockpiles likely rose 3 million barrels last week, rising for a fifth straight week. Distillates, which include diesel and jet fuel, were seen drawing down 2 million barrels.
In Europe’s case, Goldman said it would take 50 fewer heating degree days (HDDs) than normal this winter for storage to hit tank tops.
“While our distillate balances suggest that stocks will fall short of capacity, the margins of error are small and the risks high, leaving risks to current crude oil prices and timespreads as skewed to the downside through next spring,” it said in a research note.
HDDs are measured by the difference between the average temperature outside and the 70 degrees Fahrenheit (21 degrees Celsius) required for it to be comfortable indoors without heating. The lower the HDD reading, the less fuel products such as heating oil, gasoil and natural gas are needed.
On Monday, the HDD reading for the lower 48 U.S. states over the next two weeks was at 178, versus the norm of 199 this time of year, due to the El Nino weather pattern, meteorologists say.