West Texas Intermediate crude surged to a 15-month high after U.S. stockpiles tumbled for a second week. WTI’s discount to Brent narrowed to less than $2 for the first time since December 2010.
Oil advanced 2.9% after the Energy Information Administration said supplies fell 9.87 million barrels, three times as much as projected in a Bloomberg survey. WTI has moved into backwardation, with futures closest to expiration more expensive than those for later delivery. The gain accelerated as minutes from a Federal Reserve meeting showed many officials want employment to pick up before slowing stimulus.
“There’s no incentive to hold supplies with the market in backwardation,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “You are seeing big drops in inventories and that should continue.”
WTI crude for August delivery climbed $2.99 to $106.52 a barrel on the New York Mercantile Exchange, the highest settlement since March 27, 2012. The volume of all futures traded was double the 100-day average at 3:44 p.m. The August contract was 90 cents more expensive than the September one, the steepest premium since October 2008.
Brent oil for August settlement increased 70 cents, or 0.6%, to end the session at $108.51 a barrel on the London- based ICE Futures Europe exchange. The volume for all contracts was 35% above the 100-day average.
The U.S. benchmark’s shrinking discount to its European counterpart, Brent from the North Sea, underlines the easing of a supply bottleneck in the U.S. The spread widened to as much as $23.44 a barrel on Feb. 8 before contracting to as little as $1.82 today. It was $1.99 at the settlement.
U.S. crude stockpiles have fallen 20.2 million barrels, or 5.1%, to 373.9 million in the last two reports, the biggest two-week plunge since at least 1982, according to EIA, the Energy Department’s statistical unit. Supplies surged to 397.6 million on May 24, the highest level since 1931.
“WTI is the leader now,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “The last two reports have been real eye-openers. You’ve had two massive supply declines and there’s a lot of speculative interest entering the market.”
The report was forecast to show a 3.2 million-barrel drop, according to the median of 11 analyst surveyed by Bloomberg.
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.