WTI Crude Halts Longest Drop Since September as Equities Surge

Jan 07, 2014 4:54 pm ET

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Jan. 7 (Bloomberg) -- West Texas Intermediate crude halted its longest run of declines since September after equities rose as German unemployment fell for the first time in five months.

Futures advanced 0.3 percent, ending a five-day losing streak. The German data signaled increased confidence by companies in Europe’s largest economy. WTI also climbed on the coldest U.S. weather in almost 20 years and forecasts that a government report tomorrow will show that the nation’s crude supplies fell for a sixth week. Brent oil in London gained on clashes between Iraq’s government and al-Qaeda-linked militants.

“We continue to see signs of a general recovery of the economy,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “When it gets cold, demand for energy goes up. There are a number of factors at work now that are bullish for crude demand.”

West Texas Intermediate crude for February delivery increased 24 cents to settle at $93.67 a barrel on New York Mercantile Exchange. The volume of all futures traded was 13 percent lower than the 100-day average at 4:41 p.m.

Prices extended gains after the American Petroleum Institute reported U.S. crude inventories fell 7.31 million barrels last week. WTI gained 48 cents, or 0.5 percent, to $93.91 a barrel in electronic trading at 4:41 p.m. It was $93.87 before the report was released at 4:30 p.m.

Brent for February settlement rose 62 cents, or 0.6 percent, to end the session at $107.35 a barrel on the ICE Futures Europe exchange. The volume of all futures traded was 4.5 percent above the 100-day average.

Narrowing Spread

The European benchmark’s premium to WTI closed at $13.68 after narrowing for the first time in six days.

The number of people out of work in Germany decreased by a seasonally adjusted 15,000 to 2.965 million, the Nuremberg-based Federal Labor Agency said today. Euro-area inflation slowed to 0.8 percent, a report from the European Union’s statistics office in Luxembourg showed.

The trade deficit in the U.S. shrank more than forecast in November as oil imports dropped to the lowest level in three years and exports rose to a record. The gap slipped 12.9 percent to $34.3 billion, smaller than projected by any economist surveyed by Bloomberg and the least since October 2009, figures from the Commerce Department showed today in Washington.

The German employment data helped spur a rebound in stocks. The Standard & Poor’s 500 Index and the Dow Jones Industrial Average each gained 0.6 percent.

‘High Correlation’

“Equities are up, and oil has halted its slide,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “There’s high correlation between moves in equities and oil.”

Frigid air clamped down on much of the U.S. for a second day, giving Chicago a morning temperature lower than the South Pole and breaking records across the nation. Chicago, which yesterday touched a record low for the date of minus 16 (minus 27 Celsius), hovered at minus 10 at dawn, the National Weather Service said. As of 8 a.m., it was 4 degrees in New York, breaking a record for the date set in 1896, the agency said.

The Energy Information Administration will report tomorrow that crude inventories decreased 2.75 million barrels last week, according to the median of 10 analyst estimates in a Bloomberg survey. The respondents projected that stockpiles of gasoline and distillate fuel, a category that includes diesel and heating oil, increased.

“We’re looking for another crude-supply decline in tomorrow’s report,” Yawger said. “Refineries are running at a pretty high level, so it’s being turned into fuel. Gasoline and distillate supplies probably rose.”

Iraqi Unrest

Sunni Muslim fighters in Anbar province vowed to fight off an effort by government forces to regain control of towns that Prime Minister Nouri al-Maliki says are under the sway of al- Qaeda. Iraq pumped 3.2 million barrels of crude a day in December, making it the second-largest producer in the Organization of Petroleum Exporting Countries, according to a Bloomberg survey.

“The proximate cause of the move higher is the deteriorating security situation in Iraq,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Very rarely does the market trade lower more than five days. We’re consolidating after a big selloff.”

Most Iraqi crude production occurs in the Shiite areas of southern Iraq and the Kurdish region in the north, with little in the Sunni Arab center of the country.

Foiled Shipment

Libya’s navy foiled an attempt to export oil from the rebel-held Es Sider port. Naval forces stopped a Malta-flagged vessel from entering the nation’s territorial waters and warned it against loading crude from facilities not under the control of National Oil Corp., said Mohamed El-Harari, a spokesman at the state-owned company.

“Renewed strife in Libya and Iraq is very bullish for the market,” said John Kilduff, partner at Again Capital LLC a New York-based hedge fund that focuses on energy. “Iraq had been a bright spot for production.”

Implied volatility for at-the-money WTI options expiring in February was 17.9 percent, down from 19.9 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 417,529 contracts at 4:39 p.m. It totaled 450,955 contracts yesterday, 14 percent lower than the three-month average. Open interest was 1.63 million contracts.

--With assistance from Grant Smith in London. Editors: Margot Habiby, Dan Stets