Brent Crude Rises First Time in Four Days on IEA Demand Forecast

Jan 21, 2014 3:28 pm ET

(For Bloomberg fair value curves, see CFVL <GO>.)

Jan. 21 (Bloomberg) -- Brent crude rose for the first time in four days after the International Energy Agency raised its forecast for global oil consumption on a strengthening economy. West Texas Intermediate reached at a two-week high.

The European benchmark gained 0.4 percent and WTI advanced 0.7 percent. World consumption will surge by 1.3 million barrels a day this year to a record 92.5 million, the IEA said in its monthly Oil Market Report. The 90,000-barrel-a-day increase from December’s outlook follows the first year of annual demand growth in developed nations since 2010.

“The market is up primarily on the IEA report and the expectations of expanding global demand,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC.

Brent for March settlement climbed 38 cents to end the session at $106.73 a barrel on the London-based ICE Futures Europe exchange. The volume of all contracts traded was 15 percent more than the 100-day average at 3:27 p.m. in New York.

WTI for February delivery, which expired today, jumped 62 cents, or 0.7 percent, to $94.99 a barrel on the New York Mercantile Exchange, the highest settlement for a front-month contract since Jan. 2. The more-active March contract increased 38 cents to $94.97. Volume was 11 percent below the 100-day average.

Floor trading in the U.S. was closed yesterday for the Martin Luther King Jr. Day holiday, and transactions will be booked today for settlement purposes.

IEA Forecast

Global oil demand growth in 2014 will be led by China, which will account for about a third of the increase, the Paris- based IEA said. The country’s daily oil consumption will reach 10.49 million barrels. The U.S., the single-biggest driver of growth last year, will use 19 million barrels a day of oil, up from 18.9 million in 2013. Growth in Organization for Economic Cooperation and Development countries is estimated to be 85,000 barrels a day.

“Brent is the global benchmark for crude,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “The growth situation in China is helping Brent much more than WTI.”

Higher forecasts for global fuel demand prompted the IEA to increase estimates for the amount of crude needed from the Organization of Petroleum Exporting Countries. OPEC’s 12 members, responsible for about 40 percent of global oil supplies, will need to provide an average of 29.4 million barrels a day in 2014, or about 200,000 more than the IEA had forecast in last month’s report.

Global Growth

The International Monetary Fund raised its forecast for global growth this year as expansions in the U.S. and U.K. accelerate. The global economy will grow 3.7 percent this year, compared with an October estimate of 3.6 percent, the IMF said in revisions to its World Economic Outlook released in Washington today.

“The IEA report projected this year’s demand will be higher and that’s affecting Brent,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “If we get good economic growth, which looks increasingly likely, demand will be stronger.”

Laws preventing the export of crude from the U.S. “could have an adverse impact in continued investment in light, tight oil and thus continued growth in production,” an event the IEA refers to as the “crude wall.”

WTI-Brent

“The IEA report mentioned that if the U.S. doesn’t export crude, we are going to see a tight global market,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “The report is pushing up Brent versus WTI.”

Brent was at an $11.76 premium to U.S. benchmark WTI, based on March contracts. That compares with $11.89 on Jan. 17.

U.S. crude production increased 14,000 barrels a day to 8.16 million in the week ended Jan. 10, the most since 1988, according to the Energy Information Administration, the Energy Department’s statistical arm. Output has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations.

WTI is facing technical resistance at the 50-day moving average, Baruch said. That’s around $95.44 today. The front- month contract has settled below the average since Jan. 2.

Implied volatility for at-the-money WTI options expiring in March was 17.7 percent, up from 16.9 percent Jan. 17, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 417,734 contracts at 3:27 p.m. It totaled 427,334 contracts Jan. 17, 18 percent lower than the three-month average. Open interest was 1.61 million contracts.

--With assistance from Grant Smith in London. Editors: Margot Habiby, Bill Banker