WTI Crude Declines From Two-Month High as Rally Seen as Overdone

Dec 23, 2013 4:14 pm ET

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Dec. 23 (Bloomberg) -- West Texas Intermediate crude retreated from a two-month high on speculation that prices climbed more than justified last week.

Futures dropped 0.4 percent in New York, paring the December gain to 6.7 percent. Global equities advanced after Christine Lagarde, managing director for the International Monetary Fund, said yesterday that the group is raising its outlook for the U.S. economy. The Energy Information Administration said last week that fuel demand surged in the week ended Dec. 13, while crude output was near a 25-year high. Crude slipped even as the Standard & Poor’s 500 Index climbed from the record high set Dec. 20.

“The market is pausing after a pretty good run,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We’re looking at a disconnect between the oil market and equities. It looks like the market is following its own fundamentals now instead of using the S&P as a sign of future demand.”

WTI for February delivery fell 41 cents to settle at $98.91 a barrel on the New York Mercantile Exchange, slipping from the highest close since Oct. 18. Volume was 58 percent below the 100-day average. The price has gained 7.7 percent in 2013.

Brent crude for February settlement slipped 21 cents to $111.56 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 53 percent lower than the 100-day average. The European benchmark traded at a $12.65 premium to WTI.

IMF Outlook

The IMF is raising its outlook for the U.S. economy as a budget deal in Washington and the Federal Reserve’s plan to taper bond buying add to optimism that growth will be sustained, Lagarde said in an interview on NBC’s “Meet the Press” broadcast yesterday. She didn’t specify new figures.

The S&P 500 and the Dow Jones Industrial Average gained 0.5 percent as consumer confidence in the U.S. rose to a five-month high in December. The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 82.5 from 75.1 in November. Economists in a Bloomberg survey called for 83, according to the median projection.

U.S. household purchases rose 0.5 percent after a 0.4 percent gain in October that was larger than previously estimated, the Commerce Department reported today in Washington.

Gross domestic product expanded in the third quarter at a faster pace than previously estimated, according to Commerce Department data released on Dec. 20.

Good Data

“It appears that the market priced in all the good economic data when we got the GDP last week,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The market got a bit ahead of itself.”

U.S. fuel consumption surged 13 percent to 21 million barrels a day in the week ended Dec. 13, the highest level since April 2008, the EIA said Dec. 18.

Crude stockpiles grew to 391.4 million barrels in the week ended Nov. 22, the most since June, according to data from the EIA, the Energy Department’s statistical arm. Inventories fell 2.94 million barrels to 372.3 million in the week ended Dec. 13. Supplies slid in nine of the past 10 Decembers as companies in Gulf Coast states delayed deliveries to reduce local taxes.

U.S. crude production climbed to 8.08 million barrels a day in the week ended Dec. 6, the most since October 1988, according to the EIA. Output dropped by 0.2 percent to 8.06 million in the seven days ended Dec. 13.

“We’re still within striking distance of $100,” Yawger said.

South Sudan

Brent slipped less than WTI on tension in South Sudan, which exports about 220,000 barrels of oil a day. Rebel forces loyal to deposed Vice President Riek Machar said they captured crude-producing Unity state as the government evacuated some oil workers and plans a partial shutdown of facilities.

The evacuation is temporary and oil output in the state of Upper Nile is flowing normally, Petroleum Minister Stephen Dhieu Dau said in a phone interview yesterday from Juba, capital of the nation that gained its independence from Sudan in 2011. The landlocked nation has sub-Saharan Africa’s third-largest oil reserves, after Nigeria and Angola, according to the BP Statistical Review.

The Organization of Petroleum Exporting Countries won’t need to cut output as global demand growth will absorb additional crude supply, the group’s three biggest producers said on Dec. 21. The possibility of a supply glut next year was rejected by ministers from Saudi Arabia, Iraq and Kuwait after a gathering of Arab crude exporters in Doha.

Implied volatility for at-the-money WTI options expiring in February was 13.4 percent, down from 14 on Dec. 20, data compiled by Bloomberg showed. Electronic trading volume on the Nymex was 213,455 contracts at 3:58 p.m., which would be the lowest level this year. It totaled 350,888 contracts Dec. 20, 37 percent below the three-month average. Open interest was 1.6 million contracts.

--Editors: Richard Stubbe, Charlotte Porter