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

Dec 23, 2013 11:04 am 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 as much as 0.6 percent in New York after gaining 2.8 percent last week. Global equities gained today after the International Monetary Fund is raising its outlook for the U.S. economy, Managing Director Christine Lagarde said yesterday. An Energy Information Administration report on Dec. 18 showed that fuel demand surged in the week ended Dec. 13, while crude output was near a 25-year high.

“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 53 cents, or 0.5 percent, to $98.79 a barrel at 10:28 a.m. on the New York Mercantile Exchange. The contract rose 28 cents to $99.32 on Dec. 20, the highest close since Oct. 18. The volume of all futures traded was 58 percent below the 100-day average. The price has gained 6.5 percent this month and 7.6 percent in 2013.

Brent crude for February settlement slipped 19 cents to $111.58 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 58 percent lower than the 100-day average. The European benchmark traded at a $12.79 premium to WTI, compared with $12.64 on Dec. 20.

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 ease doubts that growth will be sustained, Lagarde said in an interview on NBC’s “Meet the Press” broadcast yesterday, without specifying new figures.

The S&P 500 Index rose 0.5 percent and the Dow Jones Industrial Average gained 0.4 percent.

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.

--Editors: Richard Stubbe, Dan Stets