WTI Set for Weekly Loss on Stockpiles, Widens Discount to Brent

Apr 25, 2014 8:01 am ET

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April 25 (Bloomberg) -- West Texas Intermediate headed for the first weekly loss in three and its discount to Brent widened after crude stockpiles expanded to an 83-year high in the U.S., the world’s biggest oil consumer.

Futures fell 0.7 percent in New York today and were down 2.8 percent this week, the biggest drop in more than a month. Crude inventories have increased to 397.7 million barrels, the highest since 1931, Energy Information Administration data show. WTI traded as much as $8.70 a barrel below Brent in London as Russia’s military began drills near the border with Ukraine. U.S. Secretary of State John Kerry warned that Russia could be making “an expensive mistake.”

“U.S. inventories are weighing on WTI, whilst increasing tension in Eastern Ukraine has been supporting Brent,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said by e- mail. “It’s rather unlikely the spread will narrow unless the situation in Ukraine eases. Crude processing in the U.S. is at a very high level for this time of year, so the stockpile increase is rather supply-driven.”

WTI for June delivery declined as much as 74 cents to $101.20 a barrel in electronic trading on the New York Mercantile Exchange, trading for $101.32 barrel at 12:52 p.m. London time. The contract advanced 50 cents to $101.94 yesterday. The volume of all futures traded was about 2 percent above the 100-day average for the time of day.

Brent for May settlement fell 38 cents to $109.95 a barrel on the London-based ICE Futures Europe exchange. WTI’s discount to the European benchmark crude expanded to as much as $8.70 a barrel on ICE, the widest gap since March 18.

Supply Glut

U.S. crude inventories rose by 3.52 million barrels last week, the 13th gain in 14 weeks, the EIA, the Energy Department’s statistical arm, reported on April 23.

Stockpiles along the Gulf Coast, known as PADD 3, climbed by 2.44 million barrels to 209.6 million, the highest in EIA data going back to 1990. Supplies have increased in the region since January as the southern leg of the Keystone XL pipeline began moving oil from Oklahoma to the Gulf of Mexico. U.S. law bars almost all crude exports.

“The expanding stockpiles in the U.S. further widen the spread between Brent and WTI,” Will Yun, a commodities analyst at Hyundai Futures Co. in Seoul, said by phone today. “U.S. crude supplies are expanding, which can still drive WTI prices down. Brent is more influenced by geopolitical issues between Ukraine and Russia.”

OPEC Shipments

Crude shipments by OPEC, excluding Angola and Ecuador, are forecast to fall 2.1 percent to 23.37 million barrels a day in the four weeks to May 10 amid adequate U.S. inventories, according to Oil Movements. The Organization of Petroleum Exporting Countries supplies 40 percent of the world’s crude.

“There’s certainly a glut in the U.S., the U.S. is choking on crude,” Roy Mason, the founder of the researcher in Halifax, England, said by phone yesterday.

WTI may drop next week amid speculation stockpiles will increase, according to a Bloomberg News survey. Thirteen of 24 analysts and traders, or 54 percent, predict futures will decline through May 2.

In Ukraine, security forces destroyed three road blocks as they fought pro-Russian separatists in the Donetsk region city of Slovyansk, the Interior Ministry said on its website yesterday. Russia’s latest military maneuvers are a response to the situation in eastern Ukraine and involve warplanes near the border, Interfax news agency reported, citing Defense Minister Sergei Shoigu.

Kerry warned that Russia was running out of time to comply with an accord signed April 17 in Geneva aimed at easing tension. President Barack Obama said the U.S. and its allies are ready to impose further sanctions if it doesn’t back off.

Russia is the world’s second-largest net oil exporter and supplied 30 percent of Europe’s natural gas last year, according to the EIA.

--With assistance from Heesu Lee in Seoul.