WTI falls most in three months on supplies; Brent premium Grows

4/22/2014

WTI falls most in three months on supplies; Brent premium grows

MARK SHENK

NEW YORK (Bloomberg) -- West Texas Intermediate oil dropped the most in more than three months, widening the discount to Brent, on projections that a government report will show U.S. crude stockpiles climbed last week.

WTI fell as much as 2.4%. Crude supplies increased for the 13th time in 14 weeks, to 397.1 MMbbl, a Bloomberg survey showed before tomorrow’s Energy Information Administration report. Brent fell less than WTI after Vice President Joe Biden expressed U.S. support for Ukraine during a visit to the capital Kiev, as an agreement with Russia to ease tension in the former Soviet republic’s east showed weakness.

“The market is moving lower on expectations that we’ll get another supply build in tomorrow’s report,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “Inventories are getting close to 400 MMbbl, which is very bearish for the market.”

WTI for May delivery, which expires today, slid $2.37 to $102 a barrel at 1:12 p.m. on the New York Mercantile Exchange. Futures are heading for the biggest drop since Jan. 2. The more-active June contract dropped $1.98, or 1.9%, to $101.67. May’s premium to June narrowed to as little as 22 cents, the smallest this year. Trading was 30% above the 100-day average.

Brent for June settlement decreased 99 cents, or 0.9%, to $108.96 a barrel on the London-based ICE Futures Europe exchange. The contract rose to $109.95 yesterday, also the highest close since March 3. Trading was 13% below average. WTI traded at a $7.29 discount to Brent, up from $6.30 at yesterday’s close.

U.S. crude inventories increased 3 MMbbl last week, according to the Bloomberg survey. Supplies grew to 394.1 MMbbl in the week ended April 11, the highest level since June 2013, the EIA, the Energy Department’s statistical arm, said last week. Production climbed to 8.3 MMbopd in the period, the most since April 1988.

Crude supplies at Cushing, Oklahoma, the delivery point for WTI, fell 771,000 bbl in the week ended April 11 to 26.8 MMbbl, the least since October 2009, the EIA said April 16.

“One of the real bullish factors in the market was that May-June could spike and now May-June is under pressure,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “The expectations were really strong going into expiry because of low supplies at Cushing.”

Cushing stockpiles have fallen since the southern leg of the Keystone XL pipeline began moving oil to the Gulf of Mexico Coast from the hub in January. Inventories along the Gulf Coast, known as PADD 3, rose 5.17 MMbbl to 207.2 MMbbl, the most in EIA data going back to 1990.

“Supply drops at Cushing have trumped the big builds nationwide in recent months, but that may be about to change,” Yawger said. “‘There’s a realization that supplies have just moved to the Gulf Coast, where they are now at a record high.”

With the April 17 accord fraying, U.S. Secretary of State John Kerry warned Russian Foreign Minister Sergei Lavrov yesterday that “there will be consequences” if Russia doesn’t act “over the next pivotal days” to restrain separatist activists in Ukraine, spokeswoman Jen Psaki said in Washington. Lavrov called on the U.S. to hold Ukraine’s government accountable for not reining in what Russia portrays as right-wing militias.

“Bulls have been latching on Ukraine to drive prices higher,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Rising inventories are pointing to more-than-ample supplies in the U.S. and are basically providing resistance to the market. We haven’t seen a significant increase in demand.”

Implied volatility for at-the-money WTI options expiring in June was 17.2%, up from 16.5% yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 434,928 contracts at 1:15 p.m. It totaled 424,034 contracts yesterday, 21% below the three-month average. Open interest was 1.65 million contracts.

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