WTI Heads for Biggest Weekly Decline in 7 Months; Brent Falls

Aug 01, 2014 8:49 am ET

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Aug. 1 (Bloomberg) -- West Texas Intermediate headed for its biggest weekly decline since January amid signs of weaker fuel demand in the U.S., the world’s biggest oil consumer. Its discount to Brent crude widened to the most in five weeks.

Futures traded in New York declined 4.4 percent this week. The nation’s gasoline inventories rose to the highest level in four months last week as demand fell and crude output advanced to the highest since 1986 in early July, government data show. Brent is poised for a weekly decline amid speculation that energy supplies from Russia will be unaffected by further sanctions over Ukraine.

“Demand has been a bit sluggish,” Hannes Loacker, an analyst at Raiffeisen Bank International AG in Vienna, said by e-mail. “Shale oil growth in the U.S. and oil sands in Canada lead to the situation that geopolitical tensions are not weighing that strongly as in the past. It’s always about risk aversion too.”

WTI for September delivery declined as much as $1.08 to $97.09 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since Feb. 5, trading for $97.64 at 1:38 p.m. London time. The volume of all futures traded was about 39 percent above the 100-day average for the time of day. Prices slid 6.8 percent last month, the most since May 2012.

Brent for September settlement fell 40 cents to $105.62 a barrel on the London-based ICE Futures Europe exchange. Prices are down 2.6 percent this week. The European benchmark crude was at a premium of as much as $8.52 to WTI, the widest on an intraday basis since June 24.

Gasoline Weakness

U.S. gasoline supplies expanded by 365,000 barrels to 218.2 million during the seven days ended July 25, data from the Energy Information Administration showed July 30.

Consumption of the fuel during the past four weeks shrank to an average 8.95 million barrels a day, the least since May, said the EIA, the Energy Department’s statistical arm. The country’s peak driving season typically runs from Memorial Day, on May 26 this year, to Labor Day on Sept. 1.

Bearish Sign

“Markets remain under pressure from the increase in supply that we’re seeing in the U.S. and the drop in geopolitical tensions,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone. “Breaking below $98.50 a barrel for West Texas is a very bearish sign.”

Demand for crude may also decline amid a prolonged shutdown of a Kansas refinery. The plant in Coffeyville may be closed for four weeks after a July 29 fire, according to Jack Lipinski, CVR Refining LP’s chief executive officer. The plant uses crude from Cushing, Oklahoma, the delivery point for WTI futures and the biggest U.S. oil-storage hub.

WTI futures may advance next week as U.S. economic growth bolsters fuel demand, according to a Bloomberg survey. Out of 37 respondents, 16 forecast an increase through Aug. 8 while 12 predict a drop and 9 expect prices to be little changed.

Russia, the world’s biggest energy exporter, faces further sanctions from the EU and U.S. to pressure President Vladimir Putin over his government’s alleged support of separatist rebels in Ukraine. EU governments agreed to bar state-owned Russian banks from selling shares or bonds in Europe, restricting the export of equipment to modernize the oil industry and preventing the sale of equipment with military uses.

--With assistance from Ann Koh in Singapore.