(For Bloomberg fair value curves, see CFVL <GO>.)
Feb. 18 (Bloomberg) -- West Texas Intermediate crude surged above $102, the highest level in four months, on speculation that inventories in Cushing, Oklahoma, decreased last week and as cold weather in the U.S. boosted fuel demand.
Prices climbed the most since Dec. 3. Supplies at Cushing, the delivery point for WTI futures, probably dropped for a third week, five analysts said. A second storm in three days has brought snow to the U.S. Northeast and mid-Atlantic, bolstering the use of distillate fuels, including heating oil and diesel.
“We are likely to see another draw in Cushing,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “That’s what the markets are telling us. With this weather, distillate inventories are also going to be a major focus.”
WTI for March delivery increased $2.13, or 2.1 percent, to $102.43 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 10. Prices have rallied 5.1 percent this month. The volume of all futures traded was 25 percent above the 100-day average at 5:09 p.m. Floor trading was closed yesterday for the U.S. Presidents Day holiday.
Prices extended gains after the settlement, surging as much as 2.9 percent in electronic trading to $103.25 a barrel. Futures advanced $2.83, or 2.8 percent, to $103.13 at 5:09 p.m.
Brent for April settlement rose $1.28, or 1.2 percent, to $110.46 a barrel on the London-based ICE Futures Europe exchange. Volume was 29 percent below the 100-day average. The European benchmark grade was at a premium of $8.36 to WTI for the same month. The spread was $8.95 on Feb. 14, the widest in a week based on closing prices.
“The bulls can take it to around $105 before running into resistance,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The bulls are in control of the market. A lot of the strength we’re seeing is predicated on the narrowing of the WTI-Brent spread.”
Brent crude is becoming a “broken benchmark” for the global oil market because of declining supplies from the North Sea, Citigroup Inc. analysts said in a report dated yesterday.
Cushing stockpiles dropped 4.23 million barrels in the two weeks ended Feb. 8 as the southern leg of TransCanada Corp.’s Keystone XL pipeline moved oil to the Gulf Coast of Texas from the hub.
Supplies at the hub probably tumbled 1 million to 1.5 million barrels last week, Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois-based consulting company, said in a note to clients. Phil Flynn, senior market analyst at Price Futures Group in Chicago, forecast a 1 million- barrel decrease.
Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC., predicted Cushing supplies slid 1.9 million. Baruch also forecast a drop. Carl Larry, president of Oil Outlooks & Opinions LLC in Houston, said inventories probably declined 1.5 million barrels.
“The market is anticipating, with clarity, that there will be a significant draw at Cushing,” Finlon said.
The Energy Information Administration is scheduled to release its weekly inventory data on Feb. 20, a day later than usual because of Presidents Day.
The portion of the Keystone XL link initially began moving 288,000 barrels a day of crude. It will ramp up over the course of the year toward capacity of 700,000 barrels a day, executives said in a Jan. 22 press conference at the company’s headquarters in Calgary.
“Cushing stocks appear poised for another moderate decrease,” Ritterbusch said in a note to clients. The drop is the “result of last month’s activation of the southern Keystone Gulf leg.”
A thick band of snow over Boston and New England has the potential to drop 5 inches (13 centimeters) in a few hours, according to the National Weather Service. Snowfall started in Boston at midday. New York’s Central Park received 1.5 inches.
The latest round of snow follows a storm that dropped about 3 inches in New York on Feb. 15, bringing the city’s total winter accumulation to 55.6 inches, more than triple the average through mid-February, according to Tom Kines, a meteorologist for AccuWeather.com in State College, Pennsylvania.
About 25 percent of households in the Northeast use heating oil to warm their homes, according to the EIA, the Energy Department’s statistical arm.
“The winter storms are keeping the market well supported,” Flynn said. “Heating oil supplies are very tight.”
Distillate inventories dropped for a fifth time in the week ended Feb. 7 to 113.1 million barrels, according to the EIA, the lowest level since Nov. 22.
March futures for ultra low sulfur diesel, a proxy for heating oil, gained 2.35 cents, or 0.8 percent, to settle at $3.1017 a gallon on the Nymex, the highest level since Jan. 31.
Implied volatility for at-the-money WTI options expiring in April was 16.6 percent, up from 16.2 percent Feb. 14, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 593,405 contracts at 5:09 p.m. It totaled 566,499 contracts Feb. 14, 12 percent above the three-month average. Open interest was 1.65 million contracts.
--With assistance from Brian K. Sullivan in Boston. Editors: Margot Habiby, Richard Stubbe