(For Bloomberg fair value curves, see CFVL <GO>.)
June 11 (Bloomberg) -- West Texas Intermediate crude’s discount to Brent widened as supplies at Cushing, Oklahoma, dropped by the least in nine weeks.
The Brent-WTI spread rose from the lowest level since April after the Energy Department said supplies at Cushing, the delivery point for WTI futures, dropped 198,000 barrels to 21.2 million last week. Falling inventories at the hub have boosted U.S. prices and narrowed the gap. Brent gained on concern that Middle East tension will spread and disrupt supplies.
“We may be nearing the end of the withdrawals,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “People are not expecting any major changes in Cushing in the coming weeks and you are seeing a little bounceback in the spread.”
WTI for July delivery climbed 5 cents to end at $104.40 a barrel on the New York Mercantile Exchange. The volume of all the futures was 6.4 percent below the 100-day average for the time of day at 3:35 p.m.
Brent for July settlement gained 43 cents, or 0.4 percent, to $109.95 a barrel on the London-based ICE Futures Europe exchange. Trading was 13 percent above the 100-day average.
The European benchmark crude traded at a premium of $5.55 to WTI. The spread narrowed for a third day yesterday to close at $5.17, the smallest since April 14.
Cushing supplies reached the lowest level in more than five years last week, according to the EIA, the Energy Department’s statistical arm. Analysts including Adam Longson at Morgan Stanley have estimated a minimum operating level of 20 million barrels at the biggest U.S. oil hub.
Cushing inventories are down 49 percent since the southern leg of the Keystone XL pipeline began moving oil to Gulf refineries from the hub in January. The decline last week was the smallest since a gain in early April.
The WTI-Brent spread has averaged about $6.60 in the second quarter, according to contracts traded on the ICE, down from $9.41 in the January-March period.
The EIA said yesterday in a monthly report that “seasonal demand for refined products and strong refinery runs” will help keep the WTI discount to Brent near $7 for a few months and the gap will widen to $12 in December. EIA expects the discount to average $9 in 2014 and $11 in 2015.
Total U.S. crude supplies decreased 2.6 million barrels to 386.9 million last week, a two-month low, the EIA reported. Refineries operated at 87.9 percent of their capacity last week, down from 90.8 percent.
Marathon Petroleum Corp. shut a crude unit at the Garyville, Louisiana, refinery after tornado-related damage on May 30. The unit was brought online today after the company installed a temporary cooling water system, according to a company statement.
Brent climbed as fighters from a breakaway al-Qaeda group are in position to seize Iraqi energy infrastructure in the northern part of the country after taking control of Mosul, Iraq’s second-largest city.
The fighting in the northern Iraqi city forced a halt in repairs to a main pipeline from Kirkuk to the Mediterranean port of Ceyhan, Turkey, the state-run North Oil Co. said in a statement yesterday.
The fighting hasn’t extended to the southern part of the country, where the EIA estimates about three-fourths of Iraq’s crude production comes from. The hostilities are having “no effect” on Iraq’s crude shipments, Oil Minister Abdul Kareem al-Luaibi said today in a Bloomberg Television interview in Vienna.
“The country will probably continue to pump in the 3.1 million- to 3.2 million-barrels-a-day range, but there could easily be a major disruption,” said Sarah Emerson, managing principal of ESAI Energy Inc. in Wakefield, Massachusetts.
Iraq produced 3.3 million barrels of oil a day in May, the second highest among the 12 members of the Organization of Petroleum Exporting Countries after Saudi Arabia, data compiled by Bloomberg show.
“A big question for the oil sector in Iraq is whether extremist groups will seek to expand their attacks from the Kirkuk-Ceyhan pipeline to other energy infrastructure,” Barclays Plc said in a report yesterday. “Iraqi oil is an important swing factor.”
The Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world’s crude, kept its production target unchanged at 30 million barrels a day, a decision that was widely anticipated.
--With assistance from Mark Shenk in New York.