WTI Crude Climbs to Four-Month High on Cushing Supply Outlook

Feb 19, 2014 5:24 pm ET

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

Feb. 19 (Bloomberg) -- West Texas Intermediate crude increased to a four-month high on speculation that inventories at Cushing, Oklahoma, dropped for a third week.

Futures rose 0.9 percent. Supplies at Cushing, the delivery point for WTI, probably fell last week, according to a Bloomberg survey. TransCanada Corp. began moving oil to Texas from Cushing on the southern leg of the Keystone XL pipeline earlier this year. A government report tomorrow will show that stockpiles of distillate fuel, a category that includes heating oil and diesel, declined 2.1 million barrels last week as a winter storm hit the Northeast, a separate Bloomberg survey indicated.

“WTI is showing strength because tomorrow’s report is expected to show that Cushing oil supplies and national product stocks are down,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Cushing is being drained by a new pipeline, while product supplies are falling because of high demand.”

WTI for March delivery increased 88 cents to close at $103.31 a barrel on the New York Mercantile Exchange. It was the highest settlement since Oct. 8. The volume of all futures traded was 30 percent above the 100-day average at 4:37 p.m. Prices are up 5 percent this year.

Prices advanced from the settlement after the American Petroleum Institute reported Cushing supplies fell 1.82 million barrels last week. WTI rose $1.01, or 1 percent, to $103.44 a barrel at 4:37 p.m. in electronic trading. It was $103.45 before the report was released at 4:30 p.m.

Brent Futures

Brent crude for April settlement rose 1 cent to close at $110.47 a barrel on the London-based ICE Futures Europe exchange. Trading was 20 percent below the 100-day average.

The European benchmark grade traded at a $7.63 premium to WTI for the same month, the narrowest closing level since Oct. 9. It was down from $8.36 at yesterday’s settlement.

Crude in New York is rising “on expectations that Cushing crude supplies will continue to drop,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “The WTI-Brent spread has come in a great deal as a result.”

Cushing supplies fell 4.23 million barrels in the two weeks ended Feb. 8 as Keystone XL moved oil to the Gulf Coast.

“The opening of the new pipeline and increasing volume of oil moving out of Cushing has caught the imagination of everyone in the market,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion.

U.S. Stockpiles

Nationwide crude inventories probably expanded by 2.25 million barrels, the median of 10 estimates in a Bloomberg poll shows before tomorrow’s Energy Information Administration report.

The EIA, the Energy Department’s statistical arm, will release its weekly supply report a day later than usual because of the U.S. Presidents Day holiday on Feb. 17.

“WTI has mixed fundamentals,” said Tim Evans, an energy analyst at Citi Futures in New York. “Crude stocks are rising overall but declining at Cushing, so there’s a tension within the domestic crude-oil market.”

Low temperatures that have driven up demand for heating in the Midwest and Northeast will linger into March, said Matt Rogers, president of Commodities Weather Group LLC. Boston received 2.5 inches (6.4 centimeters) of snow yesterday, bringing the total for the season to 56 inches, or 27.1 more than normal, according to the National Weather Service.

Falling Temperatures

For the Midwest and Great Lakes region, including Chicago, readings are expected to fall 15 degrees Fahrenheit (8 Celsius) below normal from Feb. 24 to 28, said Rogers, based in Bethesda, Maryland. In the Northeast, temperatures are forecast to be at least 8 degrees lower than the norm.

“It’s been a brutal winter in some of the most densely populated parts of the country,” O’Grady said. “The market is vulnerable once the weather improves.”

March futures for ultra low sulfur diesel, a proxy for heating oil, increased 4.51 cents, or 1.5 percent, to $3.1468 a gallon on the Nymex. It was the highest settlement since Jan. 31. Volume was 16 percent above the 100-day average.

Natural gas for March delivery surged 59.8 cents, or 11 percent, to $6.149 per million British thermal units in New York, the highest settlement since Dec. 3, 2008. Trading volume was 76 percent above the 100-day average.

Demand for oil may climb because of surging gas prices. Manufacturers and utilities switch between natural gas and crude-based fuels depending on cost.

Venezuelan Unrest

Prices also gained as Venezuela’s opposition vowed to continue street demonstrations into a second week after National Guard troops arrested leader Leopoldo Lopez following protests that have left four people dead. Lopez was forced into a police vehicle yesterday while speaking to supporters after President Nicolas Maduro said he instigated demonstrations in a country with the world’s biggest oil reserves.

Implied volatility for at-the-money WTI options expiring in April was 16.4 percent, compared with 16.1 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 613,545 contracts at 4:38 p.m. It totaled 631,599 contracts yesterday, 26 percent above the three-month average. Open interest was 1.65 million contracts.

--With assistance from Moming Zhou in New York and Brian K. Sullivan in Boston. Editors: Margot Habiby, Richard Stubbe