WTI Crude Falls With U.S. Stockpiles Near Record; Brent Slips

May 09, 2014 3:35 pm ET

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May 9 (Bloomberg) -- West Texas Intermediate crude dropped for a second day on speculation that near-record U.S. crude inventories will be ample to meet demand from refineries. Brent also declined.

WTI fell 0.3 percent. U.S. oil supplies slipped 1.78 million barrels from a record 399.4 million last week, the Energy Information Administration said May 7. Futures climbed earlier today as Russian President Vladimir Putin visited Crimea for the first time since annexing the peninsula from Ukraine and the European Union considered expanding sanctions on his country.

“The fundamentals are reasserting themselves as the week comes to an end,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Even though there was a supply drop last week, they remain close to 400 million barrels, which is more than ample.”

WTI for June delivery decreased 27 cents to settle at $99.99 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 18 percent above the 100-day average for this time of day. Prices gained 0.2 percent this week.

Brent for June settlement fell 15 cents to end the session at $107.89 a barrel on the London-based ICE Futures Europe exchange. Futures slipped 0.6 percent this week. Volume was 19 percent higher than the 100-day average. The European grade closed at a $7.90 premium to WTI, up from $7.78 yesterday.

U.S. crude stockpiles dropped to 397.6 million barrels last week, the EIA report showed. Inventories the previous week were the most since the agency began reporting weekly data in 1982.

Cushing Stockpiles

WTI climbed 1.3 percent on May 7 amid speculation that operators will need to rebuild inventories at Cushing, Oklahoma, the delivery point for the grade. Stockpiles at the hub fell 1.4 million barrels to 24 million last week, a five-year low, according to the EIA, the Energy Department’s statistical arm.

Cushing supplies have tumbled 43 percent since Jan. 24, EIA data show, as the southern leg of the Keystone XL pipeline began moving oil to Gulf Coast refineries from the hub. Adam Longson, a Morgan Stanley analyst in New York, said in an e-mailed note this week that they may reach a floor of 20 million barrels in two to three weeks.

“The only supportive element in the U.S. oil market is the tightness at Cushing,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The drop in nationwide supplies shouldn’t have been a surprise. There’s no incentive for refiners to add to supplies when the market’s in backwardation and there’s no tightness anywhere except the transportation hub at Cushing.”

Possible Regulations

WTI for June delivery settled at a 68-cent premium to the July contract. A market in which short-term supplies cost more than later deliveries is said to be in backwardation.

The U.S. Environmental Protection Agency took the first formal step toward requiring oil and gas drillers to disclose the chemicals they use in hydraulic fracturing, or fracking. The agency could require companies to give the government details on what’s being used to break apart shale rock and release trapped oil and gas, according to a notice today on Reginfo.gov. The EPA said it isn’t committing to a specific regulatory outcome.

U.S. crude production climbed to 8.36 million barrels a day in the week ended April 18, the most since 1988 as a combination of fracking and horizontal drilling, EIA data show.

Sanctions Threat

Putin’s trip to Sevastopol came hours after he watched tanks rumbling across Red Square in Moscow to commemorate the Soviet victory over the Nazis in World War II.

“Any hopes that the situation was going to calm down are evaporating” after Putin’s provocative move, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.

Amid the rising tension in Ukraine, the 28 EU nations are preparing to impose sanctions on some Russian companies, and a list of targets may be approved by foreign ministers as soon as May 12, according to the two officials from member countries, who spoke in Washington on condition they not be identified because of the sensitivity of the issue.

Implied volatility for at-the-money WTI options expiring in July was 15.3 percent, up from 15.2 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 494,221 contracts at 2:58 p.m. It totaled 551,072 contracts yesterday, 2.6 percent above the three-month average. Open interest was 1.64 million contracts.

--With assistance from Moming Zhou in New York.