WTI’s Discount to Brent Shrinks as Russia Sanction Impact Muted

Jul 30, 2014 9:25 am ET

(For Bloomberg fair value curves, see CFVL <GO>)

July 30 (Bloomberg) -- West Texas Intermediate crude’s discount to Brent narrowed as U.S. inventories fell, while speculation that tougher sanctions against Russia won’t impact the nation’s fuel exports weighed on the North Sea grade.

Futures advanced 0.5 percent in New York, buoyed by stronger-than forecast U.S. economic data, and were little changed in London. U.S. crude inventories probably shrank for a fifth week, a Bloomberg News survey showed before Energy Information Administration data today. The European Union and U.S. imposed more sanctions on Russia, the world’s largest energy exporter, to pressure President Vladimir Putin’s backing of rebels in eastern Ukraine.

“Russian oil production is unlikely to be impacted in the short term,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a report. “There is very little chance of Russia responding to the west’s sanctions by curbing its oil shipments since the country is too heavily reliant on the revenues generated by the oil export business.”

WTI for September delivery advanced as much as 64 cents to $101.61 a barrel in electronic trading on the New York Mercantile Exchange, trading for $101.42 at 1:42 p.m. London time. The contract slid 70 cents to $100.97 yesterday, the lowest close since July 15. The volume of all futures traded was 14 percent below the 100-day average. Prices have lost 3.7 percent in July, the most since November.

Brent Spread

Brent for September settlement decreased as much as 37 cents, or 0.3 percent, to $107.35 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $6.21 to WTI. The spread closed at $6.75 yesterday, the widest since July 4.

U.S. gross domestic product rose at a 4 percent annualized rate in the second quarter, after shrinking 2.1 percent from January through March, Commerce Department figures showed today in Washington. The median forecast of 80 economists surveyed by Bloomberg called for a 3 percent advance.

The nation’s crude stockpiles dropped by 4.4 million barrels nationwide and by 914,000 at the main storage hub in Cushing, Oklahoma, the American Petroleum Institute, an industry group in Washington, was said to have reported yesterday. Inventories nationwide probably fell by 1.25 million barrels to 369.8 million last week, the Bloomberg survey shows.

Crude stockpiles at Cushing, the biggest U.S. oil-storage hub, slid to 18.8 million barrels in the week to July 18, the lowest since November 2008, according to the EIA, the Energy Department’s statistical arm.

Gasoline Supplies

The EIA will probably report that gasoline inventories expanded by 1 million barrels in the seven days ended July 25, to the highest level since March, according to the median estimate in the Bloomberg survey of 10 analysts.

Gasoline stockpiles have risen for three weeks to 217.9 million barrels, EIA data show, bolstering speculation of slowing demand. The country’s peak summer driving season typically starts on Memorial Day, which was on May 26 this year, through to Labor Day on Sept. 1.

Supplies of the motor fuel climbed by 60,000 barrels, the American Petroleum Institute was said to have reported yesterday. The industry group in Washington collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA, the Energy Department’s statistical arm.

“The API inventories report yesterday was fairly bullish for the market, offering upside momentum to the WTI contract,” Myrto Sokou, senior analyst at Sucden Financial Ltd. in London, said by e-mail. “New sanctions on Russia seem to deteriorate relations between Moscow and the west,” and “bring further uncertainty and high volatility to the markets.”

Financial Restrictions

EU governments agreed yesterday to bar state-owned Russian banks from selling shares or bonds in Europe, restricting the export of equipment to modernize the oil industry and barring the sale of equipment with military uses.

The allies were moved to act after pro-Russian separatists continued to impede an investigation into the July 17 downing of a Malaysian airliner by a surface-to-air missile over eastern Ukraine.

WTI has technical support along its 200-day moving average, data compiled by Bloomberg show. Futures rebounded in mid-July after reaching this indicator, at about $99.90 a barrel today. Buy orders tend to be clustered around chart-support levels.

--With assistance from Ben Sharples in Melbourne.