West Texas Intermediate advanced, narrowing its discount to Brent crude to the lowest level in more than five weeks, as the euro trimmed losses against the dollar and OPEC increased production.
WTI gained for a fourth day as the euro stayed above $1.30. Brent’s premium to WTI narrowed for a fifth day, dropping to $17.11 a barrel from $20.79 in that time. Brent fell 0.5% after OPEC boosted its crude production to the highest level in three months in February. WTI futures open interest reached a record yesterday in New York.
“The real move is in that Brent-WTI spread,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “Oil is following currencies. I won’t be surprised to see that spread narrow a little bit more.”
WTI for April delivery gained 48 cents, or 0.5%, to settle at $92.54 a barrel on the New York Mercantile Exchange. Prices are up 0.8% this year. Volume was 36% above the 100-day average for the time of day at 2:36 p.m.
Brent for April settlement dropped 57 cents to $109.65 a barrel on the London-based ICE Futures Europe exchange. Volume was 29% above the 100-day average. Brent’s premium to WTI fell to $17.11, the lowest level since Jan. 30. The spread was $23.18 on Feb. 8.
The gap between Brent and WTI, which will average about $16 a barrel this year, will narrow to $9 in 2014 as new pipeline capacity lowers the cost of moving mid-continent crude to the Gulf Coast refiners, the Energy Information Administration, the Energy Department’s statistical arm, said in a monthly report today.
The euro fell 0.2% to $1.3026 after dropping as low as $1.2991. The currency decreased to $1.2955 on March 8, the weakest level since December. A stronger euro and weaker dollar increase the appeal of investing in oil.
“This currency move is the dominant force right now,” said John Kilduff, a partner at Again Capital LLC, a New York- based hedge fund that focuses on energy. “It’s been quite a reversal here in currencies and the currency move has had quite an effect on oil prices.”
Implied volatility for at-the-money WTI crude options expiring in May slid to 18.38%. The Standard & Poor’s GSCI Index of 24 commodities index added 0.1%.
Goldman Sachs Group Inc. reiterated yesterday its recommendation to take advantage of an anticipated narrowing in the Brent-WTI spread by buying the June WTI contract and selling the same-month Brent futures. The spread will average around $7.50 in the second quarter, Goldman analysts including Jeffrey Currie said.
Brent, the benchmark for half the world’s oil, is more sensitive to changes in Middle Eastern and North African production because Europe has a greater dependence on supplies from the region.
The Organization of Petroleum Exporting Countries pumped 30.31 million barrels a day last month, according to OPEC’s monthly oil market report. That’s up from 30.24 million in January and is the most since November, according to OPEC estimates based on secondary sources. U.S. supplies will rise to the most in almost three decades in 2013, OPEC estimated.
“OPEC produced more oil in February, but really we are waiting for the U.S. inventory numbers,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Oil is moving along with the dollar.”
The EIA reduced its crude-oil price and global consumption projections for 2013 in the monthly Short-Term Energy Outlook. WTI will average $91.92 a barrel this year, down 1% from the February projection of $92.81. The U.S. benchmark grade will average $92.17 in 2014, unchanged from the previous month’s estimate.
The department decreased its forecast for global oil consumption this year to 90.13 million barrels a day from 90.21 million estimated last month.
The EIA may say tomorrow that oil stockpiles rose to an eight-month high last week and diesel and gasoline supplies fell, according to the median estimate of 11 analysts surveyed by Bloomberg. Crude inventories probably grew by 2.3 million barrels to 383.7 million in the week ended March 8, the most since June 22. That would be an eighth gain, the longest streak of advances since May.
Supplies increased to 381.4 million barrels in the week ended March 1 as inventories rose at Cushing, Oklahoma, the delivery point for New York futures, the EIA reported last week.
A doubling of the capacity on the Seaway pipeline to the Gulf Coast from Cushing is expected to help clear Cushing glut. The increase to 850,000 barrels a day will be completed in the first quarter, according to slides published by Enterprise Products Partners LP, co-owner of Seaway, at a Feb. 28 Simmons Energy Conference presentation. Seaway was reversed in May to provide an outlet for growing production from North Dakota and western Canada.
Electronic trading volume on the Nymex was 605,446 contracts as of 2:32 p.m. It totaled 429,602 contracts yesterday, 20% below the three-month average. Open interest was a record 1.726 million contracts.