WTI Crude Falls on Economic Data as Discount to Brent Oil Grows

May 15, 2014 3:29 pm ET

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May 15 (Bloomberg) -- West Texas Intermediate crude fell for the first time in four days as negative U.S. and European economic data bolstered speculation that fuel demand will decline. WTI’s discount to Brent oil widened.

Futures sank 0.9 percent in New York. Equities tumbled after Federal Reserve figures showed that U.S. industrial production unexpectedly dropped in April. The euro-area recovery failed to gather momentum last quarter as French growth stalled and economies from Italy to the Netherlands shrank. U.S. crude supplies climbed to near record levels last week while output rose, the Energy Information Administration reported yesterday.

“U.S. industrial growth appears to have stalled and the European GDP numbers aren’t pretty,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “A worsening macroeconomic outlook is likely to impact demand.”

WTI for June delivery slipped 87 cents to settle at $101.50 a barrel on the New York Mercantile Exchange. It was the biggest drop since April 30. Futures advanced to $102.37 yesterday, the highest close since April 21. The volume of all futures traded was 47 percent above the 100-day average at 3:28 p.m.

Brent for June settlement, which expired today, advanced 25 cents to close at $110.44 a barrel on the London-based ICE Futures Europe exchange. Volume was 7.9 percent lower than the 100-day average. The July contract slipped 22 cents to $109.09.

Brent-WTI

WTI closed at an $8.94 discount to the European benchmark crude, compared with $7.82 yesterday. It was the widest spread since April 25.

Output at U.S. factories, mines and utilities declined 0.6 percent after a 0.9 percent gain the prior month, the Fed reported. The median forecast in a Bloomberg survey of 81 economists called for an unchanged reading. The Labor Department said the fewest Americans in seven years filed applications for unemployment benefits last week.

Economies in the euro area grew 0.2 percent in the first quarter, half as much as economists had forecast in a Bloomberg survey. French gross domestic product was unchanged in the period. Dutch GDP fell 1.4 percent in the first three months of the year, the sharpest contraction in the euro area, Eurostat said today. The Italian economy shrank 0.1 percent.

The Standard & Poor’s 500 Index declined 1 percent and the Dow Jones Industrial Average slipped 1.1 percent.

U.S. crude stockpiles expanded by 947,000 barrels to 398.5 million in the seven days ended May 9, the EIA, the Energy Department’s statistical arm, said yesterday. Inventories reached 399.4 million barrels in the week ended April 25, the most in weekly reports published since 1982.

Surging Output

U.S. production increased by 78,000 barrels a day to 8.43 million, the EIA said. A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the U.S., including the Bakken in North Dakota and the Eagle Ford in Texas.

Brent showed more strength than WTI as Russia warned violence in Ukraine jeopardizes elections this month. Ukraine pushed on with an operation to flush separatists from their eastern holdout. Russian Foreign Minister Sergei Lavrov said yesterday that Ukraine is sliding into a civil war, making legitimate voting impossible.

“The fundamentals are starting to weigh on WTI,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “It’s hard to justify WTI at over $100 when inventories are near record highs while production is at the highest level in decades. Geopolitical concerns, in particular the unrest in Ukraine, are giving Brent a boost.”

OPEC Barrels

Demand for OPEC’s crude will be higher in the second half of 2014 than previously forecast because of low supplies in developed nations, an International Energy Agency report showed.

The Organization of Petroleum Exporting Countries will need to provide an average 30.7 million barrels a day in the second half of the year, or 800,000 a day more than it pumped in April, according to the IEA’s monthly report. This is 140,000 more barrels than the agency forecast last month as stronger demand has kept stockpile levels “tight” in advanced economies.

Production among OPEC’s 12 members rose by 405,000 barrels a day to 29.9 million last month, largely because of a recovery in Iraqi output and gains by Saudi Arabia, the Paris-based adviser of developed countries said.

Implied volatility for at-the-money WTI options expiring in July was 14.3 percent, down from 14.8 yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 664,286 contracts at 3:28 p.m. It totaled 578,514 contracts yesterday, 8.8 percent above the three-month average. Open interest was 1.64 million contracts.

--With assistance from Grant Smith in London.