WTI oil narrows discount to Brent to lowest level in five weeks

Goldman Recommendation

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.

Awaiting Inventory

“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.

Seaway Pipeline

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.

Bloomberg News

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