West Texas Intermediate crude gained for the sixth time in seven days as the dollar weakened and inventories fell at a major storage hub. The U.S. benchmark narrowed its discount to Brent crude for a fifth week.
WTI rose to a three-week high as the dollar slid to a one-week low against the euro after a report showed U.S. inflation is contained. Stockpiles at Cushing, Oklahoma, decreased last week to the lowest level since December, according to the Energy Information Administration. Futures pared their advance as U.S. stocks retreated after an index of consumer confidence unexpectedly slipped. The spread between WTI and Brent is set for a weekly drop even as Brent climbed more than WTI today.
“WTI’s been holding strong and the Brent-WTI spread is a big mover here,” said Bill Baruch, a senior market strategist at commodities trading firm Iitrader.com in Chicago. “It’s a currency trade. The confidence number and the equities are putting pressure on oil.”
Futures for April delivery rose 42 cents to $93.45 a barrel on the New York Mercantile Exchange, the highest settlement since Feb. 20. Prices gained 1.6% this week. Volume was 3.3% below the 100-day average for the time of day at 2:35 p.m.
Brent for May delivery gained 86 cents, or 0.8%, to $109.82 a barrel on the London-based ICE Futures Europe exchange. Volume was 6.5% below the 100-day average.
The May Brent contract was $16 more expensive than WTI futures for the same month. April Brent expired yesterday at $109.42 a barrel, $16.39 higher than the same-month WTI contract.
The gap between Brent and WTI will average about $16 this year and narrow to $9 in 2014 as new pipeline capacity lowers the cost of moving crude to Gulf Coast refiners from the central U.S., the EIA, the Energy Department’s statistical arm, said in a monthly report this week. The spread will average $7.50 in the second quarter of this year, Goldman Sachs Group Inc. said in a March 11 report.
The dollar headed for its first weekly loss against the euro since the start of February after the Labor Department reported that U.S. consumer prices increased 2% in the 12 months ended in February, after a 1.6% year-over-year gain the prior month.
The report showing inflation is contained may give the Federal Reserve scope to maintain its monetary stimulus program, known as quantitative easing, when the Federal Open Market Committee meets next week to review policy.
The dollar slipped as much as 0.8% today to $1.3107, the lowest level since March 8. A weaker dollar and stronger euro increase oil’s appeal as an investment alternative. The euro also rose as European leaders paved the way for a deal on financial assistance for Cyprus.
“The dollar is pretty weak and the U.S. market looks a little tighter after the Cushing inventory report,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “It looks like the path of least resistance is higher in the short term.”
Stockpiles at Cushing, the delivery point for New York WTI futures, dropped 1.53 million barrels to 49.3 million last week, the lowest level since Dec. 21, according to the EIA. Demand for gasoline jumped 3.1% to 8.63 million barrels a day, the most since Nov. 16.
“The big drop in Cushing inventories is telling people that maybe the bear market is over,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It does seem like it’s bringing WTI up.”
Confidence among American consumers slumped in March. The Thomson Reuters/University of Michigan preliminary sentiment index fell to 71.8, the lowest level since December 2011, from 77.6 in February. The gauge was projected to increase to 78, according to the median estimate of 67 economists surveyed by Bloomberg.
The Standard & Poor’s 500 Index and the Dow Jones Industrial Average each dropped as much as 0.5%.
Implied volatility for at-the-money WTI crude options expiring in May slid to 17.5% at 2:37 p.m. in New York from 17.2% yesterday. The figures are down from 24.7% on Feb. 21.
Electronic trading volume on the Nymex was 423,516 contracts as of 2:37 p.m. It totaled 442,295 contracts yesterday, 19% below the three-month average. Open interest was 1.71 million contracts.