Brent Crude Premium to U.S. Oil Narrows to Least Since September

Apr 10, 2014 8:31 am ET

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April 10 (Bloomberg) -- Brent crude fell, eroding its premium to West Texas Intermediate to the least since September, amid signs Libyan exports may recover as stronger gasoline demand buoys U.S. prices.

The spread between the two benchmark grades narrowed to $4 a barrel, the smallest gap since Sept. 20. Libya aims to ship the first tanker from the port of Hariga since rebels handed the terminal over to the government, an oil ministry official said. U.S. gasoline demand averaged 8.81 million barrels a day in the four weeks ended April 4, the highest level since Jan. 3, the Energy Information Administration said yesterday.

“Brent will remain choppy and still struggle to the upside, given prospects of additional supplies from Libya,” Andrey Kryuchenkov, analyst at VTB Capital in London, said in a report. “Optimism over solid product demand in the U.S.” is supporting WTI.

Brent for May settlement decreased as much as 72 cents to $107.26 a barrel on the London-based ICE Futures Europe exchange and was at $107.44 by 13:16 p.m. The European benchmark crude’s premium to WTI slipped to as little as $4 a barrel on ICE.

WTI for May delivery fell 24 cents to $103.36 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.04 to $103.60 yesterday, the highest close since March 3. The volume of all futures traded was about 27 percent above the 100-day average for the time of day. Prices have advanced 5 percent this year.

China Economy

Brent also weakened after exports and imports unexpectedly declined last month in China, the world’s second-biggest crude consumer, and the Organization of Petroleum Exporting Countries trimmed estimates for the amount of oil it will need to produce.

China’s overseas shipments shrank 6.6 percent in March from a year earlier, compared with a median 4.8 percent expansion forecast in a Bloomberg News survey of 47 economists. Imports were down by 11 percent, the General Administration of Customs said in Beijing today.

“These trade figures have cooled off the market,” Gordon Kwan, the regional head of oil and gas research at Nomura Holdings Inc. in Hong Kong, said by phone today. “That suggests intensifying concerns about weak manufacturing and slowing growth in the Chinese economy.”

OPEC Outlook

OPEC, responsible for 40 percent of the world’s oil supply, will need to provide an average of 29.6 million barrels a day of crude this year, according to its monthly market report. The assessment is 100,000 barrels a day lower than last month’s because of higher output from the U.S. and Canada, and in line with the group’s March production level. Oil inventories, currently “tight,” will rebuild as demand sags in the second quarter, it said.

U.S. crude stockpiles gained for the 11th time in 12 weeks while gasoline supplies slid, the EIA, the Energy Department’s statistical arm, reported yesterday. Inventories increased by 4.03 million barrels to 384.1 million in the seven days ended April 4.

Supplies at Cushing, Oklahoma, the nation’s biggest oil- storage hub and the delivery point for WTI futures, climbed by 345,000 barrels.

Rising U.S. supplies and the difficulty in restoring exports from Libya will cause the spread between WTI and Brent to widen again as the American benchmark weakens and the European marker rebounds, according to Commerzbank AG.

Spread Rebound

“The spread is narrowing because Cushing stocks are at the lowest in years and Brent is under pressure given the potential for higher supplies from Libya shortly,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by e-mail. “We see, however, the spread increasing again on continuing light, sweet crude glut in the U.S. and disappointing Libyan exports.”

Libyan lawmakers will meet on April 13 to discuss a deal that returned control of two rebel-held ports to the government, potentially tripling the country’s oil exports. Rebels seeking self-rule in the country’s east remain in control of the Es Sider and Ras Lanuf facilities.

Some members of parliament objected to a clause in an April 6 agreement with rebels that requires payment of salaries to men who defected from the government’s Petroleum Facilities Guard, Sliman Qajam, a lawmaker, said yesterday.

Libya holds Africa’s largest oil reserves. Output has declined by more than 1 million barrels a day in the past year, making it the smallest producer in the Organization of Petroleum Exporting Countries.

--With assistance from Heesu Lee in Seoul, Ben Sharples in Melbourne, Ramsey Al-Rikabi in Singapore and Rupert Rowling in London.