Brent Crude Climbs Most in a Month on Libya as WTI Spread Widens

Apr 03, 2014 3:20 pm ET

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April 3 (Bloomberg) -- Brent crude rose the most in a month amid concern that talks between the Libyan government and rebels won’t restore oil exports. West Texas Intermediate’s discount to Brent widened.

The European benchmark rebounded from the lowest level in almost five months. The rebels’ Executive Office for Barqa, representing the region of Cyrenaica, denied a report that the group will cede one of the four ports that have been under its control since July to the government in a few days. Libya’s oil output dropped to 250,000 barrels a day in March from 1.4 million a year earlier, according to data compiled by Bloomberg.

“It doesn’t look like the markets believe that an oil deal in Libya is imminent,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “Brent prices are recovering on the fact that limited Libyan oil is still something to be expected.”

Brent for May settlement gained $1.36, or 1.3 percent, to end the session at $106.15 a barrel on the London-based ICE Futures Europe exchange, the biggest gain since March 3. Volume was 30 percent above the 100-day average at 3:05 p.m. in New York. Prices fell to $104.79 yesterday, the lowest settlement since Nov. 7.

WTI for May delivery climbed 67 cents, or 0.7 percent, to $100.29 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 17 percent below the 100-day average.

Zueitina Port

WTI was at a discount of $5.86 to the European benchmark crude. The spread shrank to $5.17 yesterday, the narrowest level since October. Brent is used to price more than half the world’s oil, including exports from Libya.

Al Hayat, a London-based Arabic newspaper, reported today that the rebels in eastern Libya have agreed to hand over the Zueitina oil port. It didn’t say where it got the information. Zueitina’s crude-loading capacity is 200,000 barrels a day, according to the state-run National Oil Corp.

The report in Al Hayat “is not true,” Ali Al-Hasy, a spokesman for the Baraq group, said in a telephone interview. “We will first wait for the government to confirm the agreement reached yesterday with its representatives.”

“Libya is right on Europe’s doorstep and it has more impact on Brent,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There are concerns about Libya’s ports and oil exports.”

Libya Skepticism

Brent dropped yesterday after the rebels said that a government delegation had agreed “in principle” to three demands that would allow the ports under the Barqa-region federalists’ control to reopen.

“There is some skepticism over the Libya situation, which was so richly priced in yesterday,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.

Al Hayat reported that the other terminals under control of the Barqa group would be handed over after the government implements its side of the agreement.

WTI rose less than Brent after the Labor Department reported that applications for unemployment benefits in the U.S. increased to a five-week high of 326,000, exceeding the 319,000 median forecast of analysts surveyed by Bloomberg.

“The jobless claims are higher than expected and the report is bearish for the market,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The Libya news should be supportive for Brent. The Brent-WTI spread is widening again.”

Implied volatility for at-the-money WTI options expiring in May was 16.9 percent, down from 18.5 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 366,773 contracts at 3:06 p.m. It totaled 478,708 contracts yesterday, 10 percent below the three-month average. Open interest was 1.65 million contracts.

--With assistance from Maher Chmaytelli in Dubai.