WTI Crude Rises to One-Month High on Supply Drop; Brent Advances

May 21, 2014 8:15 am ET

(For Bloomberg fair value curves, see CFVL <GO>)

May 21 (Bloomberg) -- West Texas Intermediate climbed to the highest intraday level in a month after industry data showed crude inventories slid in the U.S., the world’s biggest oil consumer. Brent crude rose amid tension in Ukraine and Libya.

Futures for July advanced as much as 0.9 percent in New York. Crude supplies shrank by 10.3 million barrels last week, the American Petroleum Institute reported yesterday. Stockpiles were probably unchanged near a record high, according to a Bloomberg News survey before government data today. Citigroup Inc. raised its Brent price forecasts, citing increased risk from the crisis in Ukraine and supply uncertainty in countries including Libya.

The API “reported a very large drop in crude oil imports leading to a huge crude oil stock draw,” Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland, said by e-mail. “It will be interesting to see the import breakdown” in the government data today, he said.

WTI for July delivery gained as much as 92 cents to $103.25 a barrel in electronic trading on the New York Mercantile Exchange, the highest intraday level since April 22, and was at $103.22 at 12:52 a.m. London time. The volume of all futures traded was about 52 percent above the 100-day average for the time of day. The June contract expired yesterday after losing 17 cents to $102.44. Prices are up 4.9 percent this year.

Brent for July settlement was 37 cents higher at $110.06 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $6.86 to WTI on ICE. The spread widened for the first time in three days yesterday to close at $7.36.

Oil Supplies

WTI fell for a second month in April as U.S. crude inventories increased to 399.4 million barrels, the highest level since the Energy Information Administration began publishing weekly data in 1982. Stockpiles were probably at 398.5 million in the week ended May 16, according to the median estimate of nine analysts surveyed by Bloomberg.

Crude supplies at Cushing, Oklahoma, the delivery point for New York-traded futures, dropped by 261,000 barrels last week, the API said. Stockpiles have decreased as the southern leg of the Keystone XL pipeline began moving oil to Gulf Coast refineries from storage in January.

Refinery utilization rose to an average 90.3 percent of capacity, according to the industry group in Washington, which collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The EIA, the Energy Department’s statistical arm, will probably report that rates gained 0.45 points to 89.25 percent, the Bloomberg survey shows.

Geopolitical Risk

“The inventory figures will be important now, there are signs that refinery capacity is picking up as we move into the summer driving season,” said Ric Spooner, a chief strategist at CMC Markets in Sydney, who predicts investors may sell West Texas contracts if futures climb to $105 a barrel. “We’re heading into the time of the year where things start to become more positive for oil consumption.”

Brent will average $109 a barrel this year, up from an earlier projection of $104, after tension between Ukraine and Russia introduced a “completely unexpected source of geopolitical risk,” according to Seth Kleinman, a Citigroup analyst in London.

“Even the threat of disruption is enough to warrant a significant risk premium in the market and makes precautionary stockpiling, as seems to be happening in China, a reasonable response,” he said in a report today. The average price of futures will be $105 in 2015, the bank predicted.

Ukraine Crisis

Russia’s Prime Minister Dmitry Medvedev warned the U.S. and its allies that they risk provoking a new Cold War as Ukraine said it hasn’t seen signs of a pullback of Russian soldiers in three regions along its border.

After annexing Crimea in March, Russia has been accused by the government in Kiev of fomenting unrest ahead of Ukrainian presidential elections scheduled for May 25. 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.

The U.S. shifted a Marine contingent to Italy yesterday to prepare for the possible evacuation of American personnel from Tripoli, citing lessons learned from the 2012 attack in Benghazi as political turmoil intensified in Libya.

The deployment was disclosed as former Libyan army general Khalifa Haftar led a self-proclaimed National Army to fight armed Islamist groups that have gained strength in the three years since the overthrow of Muammar Qaddafi. Haftar’s forces have attacked Islamist groups in Benghazi and have stormed the Libya parliament in the capital Tripoli.