Brent-WTI spreads further apart

Brent crude fell with West Texas Intermediate as a measure of Chinese manufacturing missed estimates. The spread between the grades was near the widest in two months after stockpiles at Cushing, Oklahoma, surged the most since October.

Futures declined as much as 1% in London and New York. A preliminary Chinese Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics slid to 50.3 for August. A median 51.5 was projected in a Bloomberg News survey. Crude inventories at Cushing, the delivery point for WTI, rose 1.755 million barrels in the seven days ended Aug. 15 to 20.155 million, the Energy Information Administration said in a report yesterday.

Inventories at the hub have risen for three weeks after a fire shut down CVR Energy Inc.’s refinery in Coffeyville, Kansas on July 29. The plant uses supplies from Cushing. Speculation the refinery would restart widened the premium of front-month WTI over later contracts, known as backwardation. Brent is in the reverse scenario, known as contango.

“The manufacturing data adds to the disappointing housing data earlier this week, pointing to a possible slowdown in Chinese growth,” Ole Sloth Hansen, an analyst at Saxo Bank A/S in Copenhagen, said by e-mail. The contrasting price structures caused the Brent-WTI spread to widen as September contracts expired and “on that basis I see limited upside to the spread from here,” he said.

Brent (NYMEX:SCQ14) for October settlement decreased as much as $1.07 to $101.21 a barrel on the London-based ICE Futures Europe exchange and was at $101.31 at 1:04 p.m. local time. The contract rose 72 cents to $102.28 yesterday. The volume of all futures traded was about 7% below the 100-day average for the time of day. Prices are down 8.6% this year.

WTI (NYMEX:CLQ14) for October delivery fell as much as 95 cents to $92.50 a barrel in electronic trading on the New York Mercantile Exchange.

The U.S. benchmark crude was at a discount of $8.56 a barrel to Brent for October. The spread closed at $8.83 yesterday, the widest since June 19. The diverging price structures of the two grades mean spreads are wider for later months. WTI for November was at a discount of $9.88 a barrel to Brent.
 

China Economy
 

The Chinese manufacturing gauge trailed all 22 forecasts in the Bloomberg survey of economists. It’s down from a final reading of 51.7 for July and, if confirmed on Sept. 1, will be the lowest in three months. Numbers above 50 signal expansion.

China will account for about 11% of global oil demand this year, compared with 21% for the U.S., according to the Paris-based International Energy Agency.

“We’re seeing China in the middle of a transition and not everything is going as they would like,” Hakan Kocayusufpasaoglu, chief investment officer at Archbridge Capital AG, a Zug, Switzerland-based hedge fund, said by phone. “It means they’re going to consume less of every commodity going forward. We don’t foresee a crash for 2015 or 2016 but definitely a slower growth rate.”

U.S. crude stockpiles shrank by 4.47 million barrels through Aug. 15, the most in five weeks, the Energy Information Administration reported yesterday. Inventories at Cushing gained by the most since Oct. 25. Gasoline inventories increased by 585,000 barrels while distillate supplies, including heating oil and diesel, declined by 960,000 barrels, said the Energy Department’s statistical arm.
 

Iraq Conflict
 

In Iraq, American warplanes struck Islamic State vehicles and equipment near Mosul, the U.S. Central Command said yesterday. The Obama administration is considering sending about 300 additional troops to augment security at its embassy in Baghdad, according to the Pentagon.

The conflict in Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries, has largely spared the south, home to about three-quarters of its crude output. The nation pumped 3 million barrels a day last month, a Bloomberg survey of producers and analysts shows.

Brent has technical support along its lower Bollinger Band, according to data compiled by Bloomberg. Futures halted an intraday drop yesterday near this indicator, at about $101.25 a barrel today. Buy orders tend to be clustered around chart- support levels.

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Comments
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome