(For Bloomberg fair value curves, see CFVL <GO>)
July 22 (Bloomberg) -- West Texas Intermediate crude fell from a three-week high, widening its discount to Brent as the European Union threatened tougher sanctions against Russia over the downing of Malaysian Air Flight 17.
The U.S. benchmark August contract, which expired today, slipped before a government report tomorrow that may show crude inventories fell 2.9 million barrels last week, according to a Bloomberg survey. Brent declined less than WTI as Russian President Vladimir Putin came under pressure from the EU to expedite the probe into the air crash in eastern Ukraine.
“WTI ran up yesterday a little bit too much,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The Brent-WTI spread is widening again. We are seeing some geopolitical concern creeping into Brent.”
August WTI futures fell 17 cents to end at $104.42 on the New York Mercantile Exchange. The contract closed at $104.59 yesterday, the highest level for a front-month contract since July 1. September WTI crude was down 47 cents at $102.39. The volume of all futures was 18 percent below the 10-day average.
The American Petroleum Institute reported U.S. crude inventories dropped 555,000 barrels last week, according to people familiar with the report. Stockpiles at Cushing, Oklahoma, fell 1.4 million.
Gasoline futures extended losses after the API was also said to report an inventory gain of 3.6 million barrels. Prices dropped 1 percent to $2.8637 a gallon on the Nymex after settling at $2.8807.
Brent for September settlement retreated 35 cents to $107.33 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures was 49 percent below the 10- day average.
“The weakness is related more to the expiration,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. The market is “waiting to get August out of the way. We are in a holding pattern.”
WTI closed at a discount of $4.94 to Brent for the September futures, compared with $4.82 yesterday, the narrowest since April 11.
The spread has gotten “a little ahead of itself,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “There is still concern about Ukraine. It has more impact on Brent than WTI.”
Brent rebounded last week for the first weekly gain in a month after Flight 17 was shot down over rebel-held territory in eastern Ukraine, killing all 298 passengers and crew. The incident threatened to intensify the worst crisis between the West and Russia since the end of the Cold War.
“The geopolitical situation definitely affects Brent more,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “You have storage numbers tomorrow. It’s a headline market.”
The downing of MH17 has galvanized sentiment against Russia in the EU, which had moved more slowly on sanctions than the U.S. Putin is trying to refute accusations from Ukraine and its U.S. and EU allies that rebels shot down the aircraft over their territory and that it supplied the insurgents with the surface- to-air missile that they used.
“Today we are seeing a little more concern about the Ukraine crisis,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “People are expecting lower U.S. crude inventories because of high refinery runs.”
Total U.S. stockpiles fell by 7.53 million barrels in the week ended July 11, the biggest decline since January, the Energy Information Administration reported last week. U.S. refineries operated at 93.8 percent of their capacity, the highest since 2005.
Inventories at Cushing, Oklahoma, dropped 650,000 barrels to 20.3 million, the lowest since 2008, according to the Energy Department’s statistical arm. Oil at the delivery point for WTI flowed to the Gulf Coast as prices there were much higher.
WTI was $4.25 below Light Louisiana Sweet crude on the Gulf Coast at 4:19 p.m. today after reaching $6.20 yesterday, the biggest discount since February, according to data compiled by Bloomberg.