(For Bloomberg fair value curves, see CFVL <GO>)
Aug. 20 (Bloomberg) -- West Texas Intermediate crude fell the most in two months amid speculation that the Federal Reserve will reduce stimulus measures next month. WTI’s discount to Brent widened by almost $2 a barrel.
Futures tumbled 2 percent as the September contract expired. Minutes from the Fed’s July meeting, scheduled to be published tomorrow, will probably provide details about deliberations on when to taper $85 billion in monthly bond buying. Brent rose as the entire September North Sea Ekofisk loading plan was deferred.
“The market doesn’t seem to have any forward momentum and the fear that the Fed could pull back is limiting the upside,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Loadings in the North Sea contributed to the widening Brent-WTI spread. Expiration position squaring seemed to drive the market lower.”
WTI for September delivery dropped $2.14 to settle at $104.96 a barrel on the New York Mercantile Exchange, the biggest slide since June 20. The September contract expired at the close of floor trading. The more-active October contract decreased $1.75, or 1.6 percent, to $105.11. Trading volume was 30 percent above the 100-day average, according to data compiled by Bloomberg.
Prices were little changed after the American Petroleum Institute was said to report crude inventories fell 1.2 million barrels last week. The October contract dropped $1.74, or 1.6 percent, to $105.12 a barrel in electronic trading at 4:40 p.m. It was $105.07 before the report was released at 4:30 p.m.
Brent for October settlement gained 25 cents, or 0.2 percent, to end the session at $110.15 a barrel on the London- based ICE Futures Europe exchange. Volume was 2.3 percent below 100-day average. Brent’s premium over WTI grew $2.39 to $5.04 a barrel, the widest level since June 28.
“Expiration is making the market more volatile,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “You have folks that have to get out of the September contract. We’ve got the Fed minutes coming tomorrow.”
Central bankers and policy makers will gather Aug. 22 in Jackson Hole, Wyoming, to discuss monetary policy. The Fed has indicated an improving jobs market could spur cuts to their monthly asset purchases. Fed Chairman Ben Bernanke, whose term ends in January, is not attending the conference.
“The trouble is, next January, Bernanke will be gone,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Markets hate uncertainty. Everything is short term and everything is volatile.”
Implied volatility for at-the-money WTI options expiring in October was 22.3 percent, the highest level in almost six weeks, data compiled by Bloomberg showed. It was 21.2 percent yesterday.
The Fed will probably begin to reduce its monthly bond purchases to $75 billion in September, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13.
Brent rose as all 15 crude cargoes on the Ekofisk loading program have been deferred, according to a revised schedule obtained by Bloomberg. Three of the consignments will now load in October, taking September exports down to 240,000 barrels a day from 300,000 barrels in the original schedule.
Crude also dropped as Libya prepared to open some oil terminals closed by labor unrest. The ports of Zueitina and Hariga are ready to resume exports, Ibrahim Al Awami, an oil ministry official, said today from Hariga. Another port, Brega, was operational as of today, a union representative said. Among other terminals, the country’s largest, Es Sider, remains closed. The port has a capacity of 350,000 barrels of day.
“That Libya news is the catalyst here,” Ilczyszyn said. “It’s shaking some of the longs out of the market.”
The country produced 800,000 barrels a day last month, half the rate pumped a year earlier, according to a Bloomberg survey of output from the 12-member Organization of Petroleum Exporting Countries. Libya holds Africa’s largest oil reserves.
U.S. crude stockpiles probably decreased 1.5 million barrels to 359 million in the week ended Aug. 16, based on the median of 11 analyst estimates before a report tomorrow from the Energy Information Administration. That would be the lowest level since Aug. 31.
“We have inventory reports coming in tomorrow,” McGillian said. “People are looking for a catalyst to drive this market higher or lower.”
Electronic trading volume on the Nymex was 739,374 contracts as of 4:41 p.m. It totaled 515,608 contracts yesterday, 20 percent below the three-month average. Open interest was 1.86 million contracts.
--With assistance from Grant Smith and Laura Hurst in London and Mariam Sami in Cairo. Editors: Margot Habiby, Dan Stets