Brent Falls Below $105 for First Time in Five Months; WTI Slides

Apr 02, 2014 8:54 am ET

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April 2 (Bloomberg) -- Brent crude dropped below $105 a barrel for the first time since November after rebels in eastern Libya said they were close to a deal to reopen ports. West Texas Intermediate slipped on signs crude stockpiles rose for an 11th week in the U.S., the world’s biggest oil consumer.

Brent declined as much as 1.4 percent in London, trading below $105 for the first time since Nov. 8, with the front-month contract erasing its premium to the second month. There may be “good news” regarding efforts to re-open oil ports in eastern Libya after talks with the government today, a spokesman for the rebels said. U.S. crude inventories probably expanded by 2.5 million barrels last week, according to a Bloomberg News survey before government data today.

“With more Libyan oil being exported and the early onset of summer in northwest Europe reducing demand, it all points down for the time being,” Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, said by e-mail.

Brent for May settlement fell as much as $1.50 to $104.12 a barrel, the lowest since Nov. 8, on the London-based ICE Futures Europe exchange, and traded for $104.25 as of 1:29 p.m. local time. It slumped 2 percent yesterday. The volume of all futures traded was almost double the 100-day average for the time of day. The European benchmark grade was at a premium of $5.34 to WTI on ICE.

WTI for May delivery slid 78 cents to $98.96 a barrel in electronic trading on the New York Mercantile Exchange. The contract dropped $1.84 to $99.74 yesterday, the lowest close since March 25 and the biggest daily loss since March 12. Prices advanced 3.2 percent in the first quarter as Russia annexed the Crimean peninsula.

Libya Talks

Rebels seeking self-rule for eastern Libya are preparing to hold talks today with the government about re-opening oil ports under their control, Ali Al-Hasy, spokesman for the self- declared Executive Office for Barqa, or Cyrenaica region, said by telephone from the eastern region.

“We may have good news for you this evening,” he said. “An Executive Office delegation is planned to meet a government delegation to discuss a compromise proposal.”

Libya’s crude output has slumped to about a 10th of its capacity as protests over jobs, pay and political rights disrupt operations. The Barqa rebels, led by former Petroleum Facilities Guards commander Ibrahim Al-Jedran, are demanding a 15 percent share of national oil revenue for the eastern region.

On the prospect of a deal between the Libyan rebels and the government, “I think the market will believe it when it sees it,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by e-mail.“For now it is just talk.”

The front-month Brent contract, which has been more expensive than the second-month on a closing basis since early November, erased its premium to trade at parity. A premium on short-term versus later deliveries is known as backwardation, and its loss often signals that supplies are starting to exceed demand.

U.S. Inventories

U.S. crude inventories have climbed for 10 weeks to 382.5 million barrels, the highest level since November, amid reduced refinery runs, according to data from the Energy Information Administration, the Energy Department’s statistical arm. Inventories fell 5.8 million barrels last week, the American Petroleum Institute said yesterday.

Gasoline stockpiles probably shrank by 2 million barrels in EIA data for the seven days ended March 28, according to the median estimate of nine analysts surveyed by Bloomberg. Supplies were up 18,000 barrels, the industry-funded API said.

The API collects supply information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA, the Energy Department’s statistical arm, for its weekly survey.

“There’s an expectation of a deteriorating inventory position in the U.S.,” Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone. “There’s also a sense in markets generally that we’re getting back to business a bit and putting concerns about Ukraine behind.”

NATO Meeting

The North Atlantic Treaty Organization’s top military commander is exploring ways to strengthen collective security in Europe as the alliance met yesterday for the first time since Russia rocked the post-Cold War order by annexing Crimea. Allied intelligence had seen no sign that the government in Moscow was scaling back its military buildup along Ukraine’s eastern borders, according to Secretary-General Anders Fogh Rasmussen.

President Vladimir Putin has described Russia’s actions as righting a historical wrong that divided Crimea when the Soviet Union collapsed, shrugging off U.S. and European Union sanctions on his country, the world’s largest energy exporter.

--With assistance from Ben Sharples in Melbourne, Heesu Lee in Seoul and Maher Chmaytelli in Dubai.