Brent Crude Tumbles Most in Four Weeks on Libyan Port; WTI Rises

Apr 28, 2014 4:12 pm ET

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April 28 (Bloomberg) -- Brent crude tumbled the most in almost four weeks and its premium to WTI shrank as Libya paved the way to resume exports from the Zueitina terminal.

Prices dropped 1.3 percent. The port in eastern Libya is ready to receive tankers for loading, said Mohamed Elharari, spokesman for state-run National Oil Corp. Futures also declined amid speculation that new sanctions against Russia won’t disrupt supplies. WTI held above $100 on speculation stockpiles at Cushing, Oklahoma, slid.

“Libyan oil supplies are going to steadily increase,” Bill O’Grady, chief market strategist at Confluence Investment Management, which oversees $1.4 billion, said by telephone from St. Louis. “The sanctions are not a big deal for the oil market.”

Brent for June settlement fell $1.46 to end the session at $108.12 a barrel on the London-based ICE Futures Europe exchange, the lowest close since April 11. The volume of all futures was 24 percent above the 100-day average at 4:11 p.m. in New York. Prices climbed to $110.33 on April 24, the highest settlement since March 3.

WTI for June delivery gained 24 cents to $100.84 a barrel on the New York Mercantile Exchange. It ended last week’s trading at the lowest settlement since April 7. The volume of all futures traded was 9.5 percent below the 100-day average.

More Libya Oil

WTI was at a discount of $7.28 to Brent. It was at $8.98 on April 25, the widest spread based on closing prices in more than a month.

“You have the prospect of more Libyan barrels coming on the market,” Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York, said by phone.

Libya revoked a legal clause known as force majeure at Zueitina, positioning the 70,000 barrel-a-day terminal for exports to restart. Rebels handed over control of Zueitina and Hariga, two of four ports they seized in July, under an April 6 agreement with the government.}

Ibrahim Al Awami, the Libyan oil ministry’s measurement director, said on April 17 that a tanker loaded with 1 million barrels of crude had departed Hariga.

Ukraine Crisis

Brent retreated after advancing to an eight-week high on April 24 amid concern that the Ukraine crisis will disrupt global supplies.

The White House announced new sanctions today on seven Russian officials and 17 companies linked to President Vladimir Putin’s inner circle. The list includes Oleg Belavantsev, Putin’s presidential envoy to Crimea; Dmitry Kozak, deputy prime minister of the Russian Federation; and Evgeniy Murov, director of Russia’s Federal Protective Service and an army general.

“The price of Brent is at the upper end of its recent range so it’s already reacted to what has been going on,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, said in a phone interview today. “For Brent to be materially affected by sanctions, you need to have interruption in oil supplies. To date, that interruption has not taken place.”

The sanctions are being imposed in conjunction with the European Union, which made its own list of 15 names public today, as the U.S. and its allies move to punish Russia for escalating the crisis in Ukraine.

Cushing Supplies

The Energy Information Administration, the Energy Department’s statistical arm, may report another drop in inventories at Cushing on April 30, according to estimates from Phil Flynn, senior market analyst at the Price Futures Group in Chicago; Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois-based consulting company; and Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC.

Stockpiles at Cushing, the delivery point for New York- traded futures, have decreased since January as the southern leg of the Keystone XL pipeline began moving oil from the hub to Gulf Coast refineries. Supplies dropped to 26 million in the week ended April 18, the least since October 2009, according to the Energy Information Administration.

“We are seeing the unwinding of the WTI-Brent spread,” Flynn said. “The market is not reacting to the new sanctions. We should see another drawdown at Cushing and that’s what’s supporting WTI.”

Implied volatility for at-the-money WTI options expiring in June was 17.8 percent, up from 16.8 percent April 25, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 419,626 contracts at 4:11 p.m. It totaled 420,970 contracts April 25, 22 percent below the three-month average. Open interest was 1.64 million contracts.

--With assistance from Barbara Powell in Houston.