Brent Oil Premium to WTI Narrows to Two-Month Low on Inventories

Jun 10, 2014 7:54 am ET

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June 10 (Bloomberg) -- The gap between West Texas Intermediate and Brent narrowed to the least in almost two months as U.S. crude stockpiles were forecast to fall and Ukraine said peace talks with Russia yielded progress.

Futures rose as much as 0.5 percent in New York and Brent was steady in London. U.S. crude stockpiles probably shrank by 1.5 million barrels in the week ended June 6, according to a Bloomberg News survey before data from the Energy Information Administration tomorrow. Two days of talks with Russia led to an agreement to implement parts of President Petro Poroshenko’s peace plan, Ukraine’s Foreign Ministry said in a statement.

“U.S. oil stocks are now likely to fall every week until mid-August,” Bjarne Schieldrop, chief commodities analyst at SEB AB in Oslo, said by e-mail. “No one should be surprised that the WTI-Brent spread is tightening up.”

WTI for July delivery gained as much as 48 cents to $104.89 a barrel in electronic trading on the New York Mercantile Exchange and was at $104.73 at 12:47 p.m. London time. The contract climbed $1.75 to $104.41 yesterday, the highest close since March 3. The volume of all futures traded was about 46 percent above the 100-day average for the time of day. Prices have increased 6.5 percent this year.

Brent for July settlement was 18 cents higher at $110.17 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude’s premium dropped to as little as $5.15 to WTI on ICE, the least since April 15. It was at $5.49 a barrel at 12:47 p.m.

Oil Stockpiles

U.S. crude inventories probably dropped to about 388 million barrels, according to the median estimate in the Bloomberg survey of six analysts. Supplies were at 399.4 million through April 25, the most since the EIA began publishing weekly data in 1982.

“The inventory report will be a key number,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone. “Brent is bumping up against a ceiling of $110 a barrel on the charts, while West Texas has got room to move up to about $105.25.”

Gasoline stockpiles are forecast to have expanded by 1 million barrels to about 212.8 million, the survey shows. The peak U.S. driving season typically starts from Memorial Day, which was on May 26, to Labor Day on Sept. 1.

The American Petroleum Institute in Washington is scheduled to release separate inventory data today. The industry group collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines, while the government requires that reports be filed with the EIA, the Energy Department’s statistical arm, for its weekly survey.

Peace Talks

Peace talks in Kiev will continue in the same format, which involved the Organization for Security and Cooperation in Europe, according to the Ukrainian Foreign Ministry.

Separate negotiations between Russia and Ukraine in Brussels overnight on gas prices and Kiev’s debt for past supplies failed to reach an agreement. They will continue today or tomorrow, EU Energy Commissioner Guenther Oettinger told reporters in Brussels today following the meetings.

OAO Gazprom will not delay today’s deadline, under which Ukraine must make prepayments for gas supplies, spokesman Sergei Kupriyanov said by phone. Following a June payment, Ukraine owes $4.5 billion for gas supplies, according to Gazprom. Kiev disputes the size of its debt.

OPEC Supply

The Organization of Petroleum Exporting Countries, responsible for about 40 percent of global supply, may keep its production target at 30 million barrels a day when it meets in Vienna tomorrow, said oil ministers including Venezuela’s Rafael Ramirez, Ecuador’s Pedro Merizalde and Iraq’s Abdul Kareem al- Luaibi.

In Libya, rebels seeking self-rule in the eastern regions withdrew a threat to shut the Hariga and Zueitina oil export terminals after Prime Minister Ahmed Maiteg agreed to step down. Output from the nation, which holds Africa’s largest crude reserves, has shrunk to about 10 percent of capacity because of unrest.

WTI is extending gains after breaching technical resistance yesterday along a downward-sloping trend line that halted rallies in earl-March, mid-April and late-May, data compiled by Bloomberg show. This line is at about $104.15 a barrel today. Investors typically buy contracts when chart-resistance levels break down.

--With assistance from Ben Sharples in Melbourne.