Oil Drops as WTI-Brent Spread Widens to Most in Year

Crude declined in New York, widening its discount to Brent to the most in almost a year, after the World Bank said a slowdown in China will curb East Asian growth.

Prices dropped 0.6 percent as the Washington-based lender predicted expansion in Asia, excluding Japan and India, will slide to the lowest level in 11 years in 2012. The euro fell against the dollar as European finance ministers discussed the region’s debt crisis.

“There have been a lot of stories warning that Asia is slowing down, but when the World Bank comes in like that, people reacted to the confirmation,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The European crisis is clearly not over.”

Crude for November delivery dropped 55 cents to settle at $89.33 a barrel on the New York Mercantile Exchange. Prices are down 9.6 percent this year.

Brent for November settlement slid 20 cents to $111.82 a barrel on the London-based ICE Futures Europe exchange.

West Texas Intermediate oil on the Nymex reached a $22.49- a-barrel discount to Brent, the European benchmark, based on settlement prices. That’s the most since Oct. 20, 2011. The spread has widened on signs that supply in the U.S. is exceeding demand.

Surging output from shale-rock formations in the U.S., including the Bakken in North Dakota, and Canada’s oil sands has bolstered supplies at Cushing, Oklahoma, the delivery point for WTI on the Nymex. Nationwide stockpiles were up 8.4 percent from a year earlier, the Energy Department reported last week.

U.S. Production

“We have no physical tightness on the U.S. side,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “U.S. inventories are about 8 percent higher than they were a year earlier.”

U.S. crude output rose to 6.52 million barrels a day in the week ended Sept. 28, the most since December 1996, the department said Oct. 3. Oil inventories were 364.7 million.

Total U.S. fuel demand fell 0.3 percent to 18.3 million barrels a day in the four weeks ended Sept. 28, the lowest level since April.

The U.S. is the world’s largest energy-consuming country, followed by China, where slowing economic growth is forecast to curb fuel demand.

“China’s slowdown this year has been significant,” the World Bank said today.

Economic growth in East Asia will fall to 7.2 percent this year, the slowest pace since 2001, according to World Bank data. The new estimate is lower than a May forecast of 7.6 percent and the 8.3 percent gain in 2011.

Chinese Growth

China’s economy may grow 7.4 percent in the third quarter from the same three months last year, according to the median projection in a Bloomberg survey of 25 economists. In the second quarter, it expanded 7.6 percent.

The International Monetary Fund may reduce its global growth forecast for this year at an annual meeting tomorrow in Tokyo, where officials will tackle a slowdown triggered by Europe’s sovereign-debt crisis.

“Oil opened the week with some greater economic uncertainty after the World Bank called slower growth in Asia,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “You also have concern about Europe. The question is are we going to get some positive sentiment on the economic front, and right now it doesn’t really seem like it’s there.”

European finance ministers began a meeting at 5 p.m. in Luxembourg to discuss Spain’s overhaul effort and closer banking cooperation. A summit will start next week to ease the region’s three-year-old debt crisis.

Euro Weakens

Oil also dropped as the euro tumbled against the dollar after a report showed German industrial output fell in August. Production decreased 0.5 percent in August from July, the Economy Ministry said in Berlin.

The euro declined as much as 0.8 percent to $1.2938 before trimming the move to 0.5 percent. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.

Electronic trading volume on the Nymex was 352,414 contracts as of 3:31 p.m. Volume totaled 574,256 contracts on Oct. 5, 9.9 percent above the three-month average. Open interest was 1.57 million.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.