(For Bloomberg fair value curves, see CFVL <GO>)
March 15 (Bloomberg) -- West Texas Intermediate crude was poised for a second weekly gain, while Brent headed for a loss, narrowing the discount between the two benchmarks.
The spread between WTI and Brent is set for the biggest weekly drop in 11 months, as the U.S. benchmark advanced 1.9 percent this week and Brent lost 0.5 percent. Prices were supported as the dollar weakened for a second day against the euro. Crude will remain above $100 a barrel for the rest of the year, Angolan Petroleum Minister Jose Maria Botelho de Vasconcelos said in an interview yesterday.
“It makes sense that the spread between Brent and WTI will narrow further,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG in Vienna, who predicts the difference will shrink to $12 a barrel by the end of the year.
Futures for April delivery rose as much as 70 cents to $93.73 a barrel in electronic trading on the New York Mercantile Exchange and was at $93.62 as of 12:39 p.m. London time. The volume of all futures traded was 4.7 percent below the 100-day average. The contract advanced 51 cents yesterday to $93.03, the highest since Feb. 25.
Brent for May delivery gained as much as $1.38 cents, or 1.3 percent, to $110.34 a barrel on the London-based ICE Futures Europe exchange. The April contract expired yesterday at $109.42. Brent has narrowed its premium to WTI by $2.75 a barrel this week, the most since Oct. 19. The spread was at $16.17 today, near the narrowest since January.
The differential will average about $16 this year and narrow to $9 in 2014 as new pipeline capacity lowers the cost of moving crude to Gulf Coast refiners from the central U.S., the Energy Information Administration, the Energy Department’s statistical arm, said in a monthly report March 13. The spread will average $7.50 in the second quarter of this year, Goldman Sachs Group Inc. said in a March 11 report.
Brent and WTI were boosted as the dollar weakened before a report that economists predict will show inflation is contained, giving the Federal Reserve more scope to maintain its stimulus program. The dollar declined 0.7 percent to $1.3088 per euro at 12:32 p.m. in London.
A doubling of the capacity on the Seaway pipeline to the Gulf Coast may help clear a glut at Cushing, Oklahoma, the delivery point for the Nymex WTI contract. The increase to 850,000 barrels a day will be completed this quarter, according to slides published by Enterprise Products Partners LP, co-owner of Seaway, at a Feb. 28 Simmons Energy Conference presentation.
Crude inventories at Cushing fell by 1.5 million barrels last week, according to the EIA. That’s the biggest drop since May 2011, reducing stockpiles at the largest U.S. oil storage hub to the lowest in 11 weeks.
Brent time-spreads have dwindled to the weakest level in eight months, reducing the incentive for investors to buy and hold the oil. The premium for immediate supplies versus later deliveries shrank to 28 cents a barrel on March 13, the least since July, as North Sea output headed for the highest in 10 months. The narrower spread is dimming the attraction of buying front-month futures and transferring, or rolling, the position into the next contract at each monthly expiry.
Brent has technical resistance along its 200-day moving average, about $109.47 a barrel today, according to data compiled by Bloomberg. Futures this week fell below the indicator, signaling a breach of long-term chart support, and yesterday failed to settle above it. Sell orders tend to be clustered near technical-resistance levels.
“For this year, yes, everything indicates that the price will be maintained, although there are many variables in the market,” Angola’s Vasconcelos said yesterday in an interview in Luanda, the capital. “The most important thing is that the price is over $100 a barrel.”
Oil output from the Organization of Petroleum Exporting Countries may rise by 850,000 barrels a day from April to June, signaling a gain in prices as spare production capacity is reduced, Morgan Stanley said in a report yesterday. The group, which provides about 40 percent of global supply, will pump more as refineries end maintenance and utilities in Saudi Arabia and Japan increase the use of crude and fuel oil for electricity generation, the bank said.
WTI may fall next week after rising domestic production boosted U.S. crude inventories to the highest level in eight months, a Bloomberg survey showed. Thirteen of 29 analysts and traders, or 45 percent, forecast prices will drop through March 22. Ten respondents, or 34 percent, predicted a gain. Six said there would be little change.
--With assistance from Yee Kai Pin in Singapore and Rupert Rowling in London. Editors: Raj Rajendran, John Buckley