WTI Rises to Three-Week High as Refinery Demand Cuts Stockpiles

Jul 21, 2014 3:34 pm ET

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July 21 (Bloomberg) -- West Texas Intermediate crude rose to the highest in almost three weeks as strong refinery demand reduced U.S. inventories. The U.S. benchmark’s discount to Brent narrowed to a three-month low.

Prices gained for a third time in four days. U.S. refineries operated at the highest rate in nine years in the week ended July 11, according to the Energy Information Administration. Crude inventories at Cushing, Oklahoma, the delivery point for WTI, dropped to a six-year low as oil flowed to the Gulf Coast where prices were higher.

“The supply side really should keep us higher,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Cushing is the delivery point so the drawdown there is giving the market a boost. The drop at Cushing is definitely favoring WTI over Brent.”

WTI for August delivery, which expires tomorrow, gained $1.46, or 1.4 percent, to $104.59 a barrel on the New York Mercantile Exchange, the highest settlement since July 1. The more-active September future was up 91 cents at $102.86. The volume of all futures was about 27 percent above the 100-day average.

August futures were $1.73 higher than September, the biggest spread between a front-month and second-month contract since September 2008.

“WTI to me is reacting to the expiration that’s going to happen tomorrow,” said Andy Lipow, president of Lipow Oil Associates LLC, an energy consulting firm in Houston, Texas.

Biggest Discount

Brent for September settlement gained 44 cents to end at $107.68 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was about 1 percent below the 100-day average for the time of day. September WTI was at a discount of $4.82 to Brent, down from $5.29 on July 18 and the narrowest since April 11.

WTI was $6.20 below Light Louisiana Sweet crude on the Gulf Coast today, the biggest discount since February, according to data compiled by Bloomberg.

Inventories at Cushing dropped 650,000 barrels in the week ended July 11 to 20.3 million, the lowest since 2008, according to the EIA, the Energy Department’s statistical arm. Total U.S. stockpiles fell 7.53 million, the biggest decline since January.

U.S. refineries operated at 93.8 percent of their capacity in the week ended July 11, the highest since 2005.

Total crude stockpiles probably dropped 2.8 million barrels in the week ended July 18, according to a Bloomberg survey before the EIA releases the weekly report on July 23.

Refinery Runs

“Expectations that U.S. crude oil inventories will continue falling on strong refinery runs remains a more confident motivation for WTI buyers than the geopolitical threats to Brent-related supply,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by e-mail.

President Vladimir Putin defied international anger over Russia’s alleged role in the shooting down of a Malaysia Air flight in Ukraine as the U.S. and Europe threatened further sanctions against his increasingly isolated country.

“Geopolitical risk is right now the driver of the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Brent and WTI jumped on July 17 after the airplane was shot down. The crash site at Grabovo, fewer than 60 miles from Russia, has become a focus of international outrage as armed rebels hovered over the investigation, making reclamation of wreckage and corpses more difficult. A total of 282 bodies have been found, the Ukrainian government said today.

Russia’s relations with the rest of the world are deteriorating four months after its annexation of Ukraine’s Crimea region sparked Europe’s biggest geopolitical crisis since the end of the Cold War.

“The concern about Russia is keeping the market higher,” said Flynn.