Brent Oil Falls to Three-Week Low on OPEC; WTI Discount Narrows

Jun 02, 2014 3:38 pm ET

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June 2 (Bloomberg) -- Brent crude fell to a three-week low, narrowing its premium to West Texas Intermediate, as OPEC output climbed and Libya prepared to reopen an export terminal.

Brent and WTI slipped as a Bloomberg survey showed OPEC crude production increased in May for the first time in three months. Libya’s Hariga port is set to resume operating within two days after authorities approved salary payments to Petroleum Facilities Guard members who are preventing loadings, according to the country’s National Oil Corp. Gasoline and diesel futures also fell amid speculation a government report will show fuel supplies gained last week.

“Rising OPEC production will help keep a lid on prices,” said John Kilduff, a partner at Again Capital LLC, a New York- based hedge fund that focuses on energy. “As things right themselves in places like Libya, the market will come under further pressure.”

Brent for July settlement fell 58 cents, or 0.5 percent, to end the session at $108.83 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since May 12. The volume of all futures traded was 1.3 percent above the 100- day average at 2:49 p.m.

WTI for July delivery slipped 24 cents to settle at $102.47 on the New York Mercantile Exchange. It was the lowest since May 20. Volume was 33 percent lower than the 100-day average. The U.S. benchmark closed at a $6.36 discount to Brent, down from $6.70 on May 30.

Brent, which is used to price more than half of the world’s oil, is typically more sensitive to changes to the global supply-and-demand balance.

OPEC Production

Organization of Petroleum Exporting Countries production rose by 75,000 barrels a day to 29.988 million last month, according to a Bloomberg survey of oil companies, producers and analysts on May 29. Saudi Arabia, the group’s biggest producer, bolstered output by 70,000 to 9.67 million, the country’s first gain this year.

OPEC ministers will meet on June 11 in Vienna to discuss production targets.

In Libya, the Hariga port is projected to reopen after the government approved salary for guards, Mohamed Elharari, a spokesman for National Oil, said by phone from Tripoli. The nation has become the smallest producer in OPEC during the past year as unrest disrupted output and shipments.

WTI Slipping

“The news that a port in Libya is about to reopen, along with the increase in Middle Eastern production, is putting Brent under pressure,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The fundamentals don’t support these prices so we should see them continue to move lower. WTI should soon test $100.”

Russian crude and condensate output climbed to 10.53 million barrels a day in May, up 0.6 percent from a year earlier, according to data e-mailed from the Energy Ministry. Condensate is a light petroleum liquid commonly found in association with natural gas.

An Energy Information Administration report on June 4 will probably show that U.S. crude oil supplies fell last week, while stockpiles of gasoline and distillate fuel, a category that includes diesel and heating oil, rose, according to a Bloomberg survey of analysts.

Gasoline for July delivery dropped 2.2 cents, or 0.7 percent, to close at $2.9499 a gallon on the Nymex. It was the lowest settlement for the front-month gasoline contract since May 13.

Diesel Falls

Ultra low sulfur diesel for July delivery fell 1.09 cents, or 0.4 percent, to settle at $2.8773 in New York. It was the lowest close since April 2 and the second-lowest of 2014.

Crude gained in early trading after a report showed China’s Purchasing Managers’ Index advanced. It rose to 50.8 in May, the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing reported yesterday. The PMI is the highest since December and surpasses the median estimate of 50.7 in a Bloomberg News survey of economists.

The nation will account for about 11 percent of global oil demand this year, compared with 21 percent for the U.S., forecasts from the International Energy Agency in Paris show.

--With assistance from Grant Smith in London.