WTI Crude Caps Biggest Weekly Decline in Seven Months on Demand

Aug 01, 2014 3:35 pm ET

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Aug. 1 (Bloomberg) -- West Texas Intermediate crude capped its biggest weekly decline in seven months on concern that demand will fall as refineries slow operations. Brent’s premium over WTI narrowed from a one-month high.

Prices dropped for a fifth day as the refinery utilization rate fell last week for the first time in more than a month, according to government data. The rate may slip further because of a fire that shut CVR Refining LP’s Coffeyville refinery in Kansas and the beginning of seasonal maintenance. Gasoline also slumped.

“Weak fundamentals seem to be weighing on the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Refineries are entering into the maintenance season and demand for WTI will drop off.”

WTI for September delivery declined 29 cents, or 0.3 percent, to $97.88 a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 6. This week’s 4.1 percent drop was the largest since Jan. 3. Trading was 11 percent above the 100-day average for the time of day at 3:14 p.m.

The 14-day relative strength index of front-month futures reached 27.7 today, according to data compiled by Bloomberg. An RSI below 30 typically signals a market is oversold.

Brent for September settlement decreased $1.18, or 1.1 percent, to $104.84 a barrel on the London-based ICE Futures Europe exchange. Prices slid 3.3 percent this week. The European benchmark crude was at a premium of $6.96 to WTI, down from $7.85 yesterday, the widest since June 24.

Lower Demand

The refinery utilization rate decreased to 93.5 percent in the week ended July 25 from 93.8 percent the previous week, according to the Energy Information Administration. U.S. refineries typically schedule maintenance for September and October, when they move from maximizing gasoline output to producing winter fuels.

CVR’s plant may be shut for four weeks after a July 29 fire, Chief Executive Officer Jack Lipinski said yesterday on an earnings call. The 115,000-barrel-a-day plant receives most of its crude from Cushing, Oklahoma, the delivery point for WTI futures.

Inventories at Cushing started declining in January after the southern leg of TransCanada Corp.’s Keystone XL pipeline began moving oil from the hub to Gulf refineries. Supplies dropped to 17.9 million barrels in the week ended July 25, the lowest level since 2008, according to the EIA.

Gasoline Drops

Cushing supplies may climb this quarter as new pipelines are scheduled to open. Enbridge Inc. said today it expects its Flanagan South pipeline to be mechanically completed in mid- October. The line will carry crude to Cushing from Illinois.

WTI also dropped as gasoline futures declined 1.9 percent to $2.7443, the lowest close since Feb. 10. The crack spread, the profit to process one barrel of oil into gasoline, narrowed by $1.72 to $17.38 a barrel based on settlement prices.

“When you have a deteriorating gasoline crack, it’s so difficult to make a case for crude appreciating,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “At some point fundamentals have to rule.”

Gasoline demand fell 0.5 percent to an average 8.95 million barrels a day in the four weeks ended July 25, the weakest for this time of year since 2012. Inventories of the fuel rose to 218.2 million barrels on July 25, the most since March.