WTI Oil Climbs as Economic Data Signals U.S. Growth; Brent Gains

Aug 21, 2014 3:24 pm ET

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

Aug. 21 (Bloomberg) -- West Texas Intermediate and Brent oils advanced as U.S. economic data pointed to stronger growth in the world’s biggest oil-consuming nation.

Crude rose 0.5 percent in New York while Brent increased 0.3 percent. Purchases of previously owned U.S. homes climbed to a 10-month high, jobless claims slid more than forecast and a manufacturing index surged to the highest since 2010. Brent gains lagged behind as the Chinese Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics slid to 50.3 this month, lower than the 51.5 projected in a Bloomberg survey.

“The U.S. economic data is positive and demand here is looking strong,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “Brent is responding to the global supply outlook, which is a lot less healthy than what we are seeing in the U.S.”

WTI for October delivery rose 51 cents to settle at $93.96 a barrel on the New York Mercantile Exchange. The September contract rose 1.7 percent to expire at $96.07 yesterday. The volume of all futures traded was 3.5 percent below the 100-day average at 2:49 p.m.

Brent for October settlement rose 35 cents to end the session at $102.63 a barrel on the London-based ICE Futures Europe exchange. The contract touched $101.07 on Aug. 19, the lowest intraday price since June 26, 2013. Volumes were 15 percent lower than the 100-day average.

Spread Widens

The European benchmark grade closed at an $8.67 premium to WTI. The spread between the contracts ended yesterday at $8.83, the most since June 19. The diverging price structures of the two markets mean spreads are wider for later months. November Brent settled at a $9.98 premium to WTI.

“There was a big September-October gap at yesterday’s close,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “You often see the new front-month contract close the gap after expiry.”

A report today showed fewer Americans than forecast applied for unemployment benefits last week, a sign the U.S. job market is making progress as the world’s largest economy grows. Existing home sales climbed to the most since September, as low borrowing costs and an increase in inventory drew buyers. The Markit Economics preliminary August index of U.S. manufacturing jumped to the highest since April 2010.

Federal Reserve Chair Janet Yellen speaks on the labor market tomorrow, after minutes yesterday showed that officials will continue to support the economy.

Some Support

“The flash PMI, housing data and Fed minutes are giving some support to WTI,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $120 billion of assets. “The economic news here is better than was priced in the oil market.”

The Chinese manufacturing gauge trailed all 22 forecasts in the Bloomberg survey of economists. It’s down from a final reading of 51.7 for July and, if confirmed on Sept. 1, will be the lowest in three months. Numbers above 50 signal expansion.

China will account for about 11 percent of global oil demand this year, compared with 21 percent for the U.S., according to the Paris-based International Energy Agency.

The spread between WTI and Brent grew to the widest in two months yesterday after supplies at Cushing, Oklahoma, the delivery point for the U.S. benchmark, surged. Stockpiles at Cushing rose 1.76 million barrels last week, the most since October, the Energy Information Administration said yesterday.

Crude Stockpiles

Nationwide crude stockpiles shrank by 4.47 million barrels through Aug. 15, the most in five weeks, according to the Energy Department’s statistical arm. Gasoline inventories rose 585,000 barrels to 213.3 million last week, the EIA said.

September gasoline futures increased 3.49 cents, or 1.3 percent, to settle at $2.7475 a gallon on the Nymex. Ultra low sulfur diesel for September delivery rose 1.17 cents, or 0.4 percent, to close at $2.8375 a gallon.

Gasoline pump prices fell 0.5 cent to $3.436 a gallon nationwide yesterday, the lowest since Feb. 26, according to AAA, the largest U.S. motoring group.

In Iraq, American warplanes struck Islamic State vehicles and equipment near Mosul, the U.S. Central Command said yesterday. Kurdish armed forces, known as peshmerga, are using weapons received from the U.S. to seize back territory taken by Islamic State fighters this month, a Kurdish official said.

The conflict in Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries, has largely spared the south, home to about three-quarters of its crude production. The nation pumped 3 million barrels a day last month, data compiled by Bloomberg show.

Calming Down

The Red Cross said truckloads of Russian humanitarian aid may start crossing the border tomorrow to eastern Ukraine, where months of fighting have cut off water and electricity in the region’s biggest cities. Ukrainian President Petro Poroshenko said he’ll seek to negotiate a peace agreement when he meets his Russian counterpart, Vladimir Putin, and representatives of the European Union next week in Minsk, Belarus.

“The situation in eastern Ukraine appears to be calming down, at least for the moment,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.6 billion, said by phone.

--With assistance from Rupert Rowling in London.