WTI narrows discount to Brent

West Texas Intermediate crude (NYMEX:CLN14) rose, narrowing the discount to Brent oil (NYMEX:SCN14) traded in London for the first time in five days.

The U.S. benchmark grade climbed as much as 0.7 percent while Brent slipped 0.3 percent. Brent advanced to a nine-month high yesterday as President Barack Obama said he’s dispatching as many as 300 troops to help the Iraqi army battle an insurgency, and the U.S. is prepared to take additional “targeted” action if necessary.

“The spread has surged this week and it looks like folks just want to profit from their bets,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “It appears to be spread related and nothing else.”

WTI for July delivery, which expires today, advanced 75 cents to $107.18 a barrel at 9:48 a.m. on the New York Mercantile Exchange. The more-active August contract climbed 46 cents to $106.51. The volume of all futures traded was 46 percent above the 100-day average.

Brent for August settlement dropped 31 cents to $114.75 a barrel on the London-based ICE Futures Europe exchange. The contract climbed 80 cents to $115.06 yesterday, the highest close since Sept. 6. The volume of all futures traded was 3.9 percent higher than the 100-day average.

The August WTI contract traded at an $8.24 discount to Brent, compared with $9.01 at yesterday’s close, which was the most since March 14.

WTI and Brent also moved in divergent directions today because of technical indicators, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.

Technical indicator

The 14-day relative strength index for WTI reached 68.4351 at 10:51 a.m., down from over 70 on June 12-16, according to data compiled by Bloomberg. The Brent RSI stood at 71.6298. Investors typically start selling contracts when the reading is more than 70, a sign a market is overbought.

“The Brent RSI is in overbought territory,” Yawger said. “WTI has been struggling since reaching $107.68 last week. It was overbought according to the RSI but that’s no longer the case.”

The U.S. advisors are intended to help repel a Sunni insurgency in Iraq for at least several weeks and give the country’s Shiite leaders time to form a new government that can command support across sectarian lines.

Insurgents led by the Islamic State in Iraq and the Levant, or ISIL, have seized cities north of Baghdad and engaged in a back-and-forth battle to control the Baiji oil refinery, the nation’s largest.

Iraqi crude production rose 50,000 barrels a day to 3.3 million in May, according to a Bloomberg survey of oil companies, producers and analysts. It was the second-biggest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia.

Weekly gain

Brent is up 1.2 percent this week, while WTI is 0.3 percent higher. The European crude, which is used to price more than half of the world’s oil, is typically more sensitive to changes to the global supply-and-demand balance.

“The trend is still clear, as long as there’s the threat of a loss of Iraqi crude you have to favor Brent,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “We’ve had a tremendous move in Brent this week and there’ve been heavy bets on the spread. It would make sense for the spread to come in.”

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