WTI Oil Rises to Two-Week High on Cushing Supplies; Brent Gains

Mar 27, 2014 3:08 pm ET

March 27 (Bloomberg) -- West Texas Intermediate crude advanced to the highest level in more than two weeks after supplies at Cushing, Oklahoma, the delivery point for the contract, reached a two-year low. Brent gained in London.

WTI rose 1 percent. Cushing supplies fell 1.33 million barrels last week to 28.5 million, the Energy Information Administration said yesterday. President Barack Obama said yesterday that the crisis in Ukraine may escalate and warned that sanctions on Russia may include the energy sector. WTI’s gain also narrowed the discount to Brent.

“The continuing depletion of supplies at Cushing is on everyone’s mind,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We’re seeing the WTI-Brent spread come in as a result. There’s speculation that Cushing supplies could get below operational rates.”

WTI for May delivery gained $1.02 to $101.28 a barrel on the New York Mercantile Exchange. It was the highest settlement since March 7. The volume of all futures traded was 8.4 percent below the 100-day average at 3:01 p.m.

Brent for May settlement increased 80 cents, or 0.8 percent, to close at $107.83 a barrel on the London-based ICE futures Europe exchange. Trading volume was 2.9 percent lower than the 100-day average. The European benchmark grade closed at a $6.55 premium to WTI.

‘Quite Tight’

Brent’s premium narrowed as Cushing supplies started falling in January after the southern link of TransCanada Corp.’s Keystone XL pipeline to the refineries and ports along the Texas Gulf Coast opened, easing a bottleneck from the hub. The spread has contracted by more than half since January.

“Cushing stocks drew yesterday,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York. “They are getting quite tight and are now below the five- year average and at the bottom of the range.”

Crude inventories along the Gulf of Mexico, known as PADD 3, rose 6.06 million barrels to 200.3 million, the most since weekly EIA data began in 1990.

“It looks like the former glut at Cushing has simply moved to the Gulf Coast,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Total supplies remain ample and I think that the fundamentals will reassert themselves and we’ll be looking at sub-$95 WTI in the second quarter.”

Inventories Growing

Total U.S. crude inventories expanded by 6.62 million barrels to 382.5 million in the week ended March 21, according to the EIA, the Energy Department’s statistical unit.

“The inventory data on crude oil has been sending mixed messages with inventories at Cushing declining eight weeks in a row and total U.S. inventories rising 10 weeks,” Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The focus on Cushing is having the greater influence on price at the moment. The risk is at some point refiners simply stop buying because they don’t have any place to put more crude.”

Obama said yesterday after a meeting with European leaders that there were consequences for being complacent over the annexation of Crimea from Ukraine and warned that Russia can’t run “roughshod” over its neighbors.

Asset Freezes

The U.S. and European Union have imposed asset freezes and visa bans on Russian, Ukrainian and Crimean individuals. The Group of Seven -- the members are the U.S., the U.K., Germany, France, Italy, Canada and Japan -- threatened further sanctions on the world’s biggest energy-exporting country at a March 24 meeting in The Hague.

“The Ukraine crisis continues to fester in the background, which is giving the market added support,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.

WTI also rose on positive U.S. economic figures. Applications for unemployment benefits decreased by 10,000 to 311,000 last week, Labor Department data showed today in Washington. Separate data from the Commerce Department showed U.S. gross domestic product rose at a 2.6 percent annualized rate in the fourth quarter of 2013, revised from 2.4 percent.

Electronic trading volume on the Nymex was 399,829 contracts at 2:48 p.m. It totaled 433,991 contracts yesterday, 17 percent below the three-month average. Open interest was 1.62 million contracts.

--With assistance from Rupert Rowling in London, Moming Zhou in New York and Barbara Powell in Houston.