Brent Oil Falls From Seven-Week High on China as WTI Gap Shrinks

Feb 20, 2014 9:56 am ET

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Feb. 20 (Bloomberg) -- Brent crude dropped from a seven- week high after a Chinese manufacturing index decreased to the lowest level in seven months. West Texas Intermediate futures traded near the most in four months.

Brent slid as much as 0.8 percent, and WTI slipped 0.5 percent before erasing losses. The preliminary February reading of 48.3 for a Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics compares with the 49.5 median estimate in a Bloomberg survey. WTI rose 3 percent in the past two days on speculation that Cushing, Oklahoma, supplies shrank.

“There was a disappointing reading in China’s manufacturing, and that kind of triggered profit-taking,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We are expecting a drop at Cushing. If we get confirmation, it won’t be surprising to see the market pick up again. The narrowing of the spread continues to provide support for WTI.”

Brent for April settlement lost 46 cents, or 0.4 percent, to $110.01 a barrel on the London-based ICE Futures Europe exchange at 9:55 a.m. a barrel on the New York Mercantile Exchange. Volume was 31 percent below the 100-day average.

WTI for March delivery, which expires today, slid 6 cents to $103.25. April crude, the most active contract, slid 7 cents to $102.77. The volume of all futures traded was 20 percent below the 100-day average.

Spread Narrows

Brent crude was at a premium of $7.24 to WTI for the same month on ICE. The spread settled at $7.63 yesterday.

China’s manufacturing reading fell from January’s final figure of 49.5. A number below 50 indicates contraction. The country is the world’s second-largest oil-consuming country after the U.S.

Supplies at Cushing, the delivery point for WTI, probably decreased for a third time last week, according analysts surveyed by Bloomberg before an Energy Information Administration report today. TransCanada Corp. began moving oil to Texas from Cushing on the southern leg of the Keystone XL pipeline earlier this year.

Supplies at the hub dropped by 1.82 million barrels last week, the industry-funded American Petroleum Institute reported yesterday. Distillate stockpiles, including heating oil and diesel, declined by 676,000 barrels.

Total U.S. crude stockpiles slid by 473,000 barrels, according to the API. The EIA is expected to report an increase of 2.25 million, the Bloomberg survey showed.

--Editors: Margot Habiby, Charlotte Porter