WTI Crude Narrows Discount to Brent as Libya Increases Output

Feb 10, 2014 3:24 pm ET

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Feb. 10 (Bloomberg) -- West Texas Intermediate crude gained for a fifth day, paring the discount to Brent on speculation that inventories in Cushing, Oklahoma, decreased last week and as Libya worked to restore supplies.

WTI rose 18 cents to a six-week high. Supplies at the delivery point for futures may have dropped for a second time as the southern leg of the Keystone XL pipeline moved oil to the Gulf Coast. Brent dropped as Libya increased output after protests at the Sharara field ended, according to the country’s National Oil Corp.

“WTI should be a little stronger and Cushing is a huge factor in it,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group Ltd. “It’s highly likely that inventory will draw. Libya is the explanation for the deterioration for Brent.”

WTI for March delivery climbed to $100.06 a barrel on the New York Mercantile Exchange, the highest settlement since Dec. 27. The volume of all futures was 12 percent above the 100-day average. Crude has risen 3.8 percent in five sessions.

Brent for March settlement fell 94 cents, or 0.9 percent, to $108.63 a barrel on the ICE Futures Europe exchange. Volume was 4.3 percent above the 100-day average. The premium to WTI slipped to $8.57 a barrel from $9.69 on Feb. 7.

Cushing Supplies

U.S. crude supplies at Cushing dropped 1.55 million barrels in the week ended Jan. 31 from the previous week’s six-month high, the Energy Information Administration reported last week. The total of 40.3 million is 22 percent below a year earlier.

“There will be a drawdown in Cushing because of Keystone,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Cushing may have a 1 million-barrel withdrawal.”

The southern leg of TransCanada Corp.’s Keystone XL link began moving oil to the Gulf Coast of Texas from Cushing last month. The line was initially flowing at 288,000 barrels a day and will ramp up over the course of the year toward the 700,000- barrel capacity, executives said in a Jan. 22 press conference at the company’s headquarters in Calgary.

“We had a very significant Cushing draw in WTI,” Finlon said. “The Keystone flow is continuing and another drawdown of similar size is entirely possible.”

Keystone Impact

Supplies at the hub may have decreased by as much as 1.5 million barrels “as a result of the recent activation of the southern Keystone Gulf leg,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois-based consulting company, in a note to clients.

Libya, holder of Africa’s largest reserves, is pumping about 600,000 barrels a day and exporting 440,000, Mohamed Elharari, a spokesman for state-run National Oil Corp., said by phone from Tripoli. Output from the second-largest oil field, Sharara, expanded to 327,000 after protesters reopened a pipeline valve near Zintan, he said.

Production was 450,000 to 500,000 barrels on Feb. 6, according to the OPEC member’s state oil company. Libya pumped 470,000 barrels a day in January, according to data compiled by Bloomberg.

“Brent is under pressure from rising volumes from Libya,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “That’s what’s weighing things down.”

Watching Yellen

WTI also rose as U.S. equities erased a decline before Federal Reserve Chairman Janet Yellen delivers her first report on monetary policy tomorrow. The Standard & Poor’s 500 Index rose 0.1 percent at 2:47 p.m.

“A lot of traders are playing safe thinking that she will keep soft monetary policy going forward,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston.

Implied volatility for at-the-money WTI options expiring in April was 17.4 percent, up from 17.2 percent Feb. 7, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 519,807 contracts at 2:36 p.m. It totaled 617,648 contracts Feb. 7, 22 percent above the three-month average. Open interest was 1.62 million contracts, a three-week high.

--With assistance from Grant Smith in London and Saleh Sarrar in Dubai. Editors: Richard Stubbe, Dan Stets