Sweet crude at $42/barrel

AP:

Sweet crude for February delivery tumbled 12 percent, or $5.95, to settle at $42.63 a barrel on the New York Mercantile Exchange after the report was released.

The Energy Information Administration said inventories of commercial crude oil inventories rose 6.7 million barrels, well beyond the 1.5 million-barrel build expected by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., can influence market trading.

Analyst Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said it was one of the more bearish EIA reports he's seen in a while.
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The crude futures market is now in what oil traders call a "contango" -- in which oil delivered in the next few weeks is cheaper than in the following months. Sweet crude for March delivery was trading at $49.34, about $5 cheaper than the February contract.

"A steep contango in the front of the NYMEX crude curve and the low cost of carry due to easier monetary policy has provided the economic incentive to store barrels," Linda Rafield, senior oil analyst for Platts, said in an analyst note.

Crude has become so cheap, it is being stored at sea to avoid selling it at current market prices.

"Demand for oil appears to remain weak as traders are seeking as many as 10 supertankers to store crude," Addison Armstrong, director of market research at Tradition Energy, said in a research note. "The carriers hold about 2 million barrels of crude and traders are seeking to lease the ships for three to nine months."

There were already millions of barrels of crude being stored in oil tankers at sea.