West Texas Intermediate headed for its biggest weekly drop in more than a month amid signs of rising U.S. oil inventories and a global economic slowdown.
Futures slid as much as 1 percent in New York. Prices may decline next week amid speculation that U.S. fuel supplies will be sufficient to meet summer demand after factory output in China shrank for the first time in seven months, according to a Bloomberg News survey. Goldman Sachs Group Inc. recommended selling WTI and buying Brent contracts for December 2014 as supplies accumulate on the U.S. Gulf Coast.
“U.S. crude stocks are very well-filled, and there’s some disappointing economic data from China,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG (RBI) in Vienna, who estimates WTI will average $92 this quarter. “It’s not the best cocktail for crude.”
WTI for July delivery fell as much as 94 cents to $93.31 a barrel in electronic trading on the New York Mercantile Exchange and was at $93.48 as of 1:54 p.m. London time. The volume of all contracts traded was 19 percent below the 100-day average. Prices are 2.6 percent lower this week, the most since the seven days ended April 19.
Brent for July settlement fell 40 cents to $102.04 a barrel on the ICE Futures Europe exchange. The European benchmark was at a premium of $8.55 to WTI compared with $8.19 yesterday.
The spread is still set to narrow toward $5 a barrel in the third quarter as new pipeline capacity to move crude out of Cushing causes stockpiles there to decline “substantially,” Goldman said.
The discount on WTI for delivery in December 2014 against the equivalent Brent contract has narrowed to $8.49 a barrel from $10.11 a month ago. The spread should widen as pipelines carrying crude out of the U.S. storage hub in Cushing, Oklahoma, cause a build-up on the Gulf Coast that lowers the price of WTI versus the European benchmark, Goldman said.
“If an oversupply of light, sweet crude in the U.S. Gulf coast becomes a problem as soon as third quarter 2013, it should be an even bigger problem in 2014,” analysts Jeffrey Currie and Stefan Wieler in New York said in a report today.
Brent may fall below $95 if the economy falters further, Bank of America Corp. said yesterday.
“Brent crude oil prices have found weakness recently on a combination of seasonal and cyclical headwinds,” Francisco Blanch, head of commodities research at Bank of America in New York, said in a report. “Should the global economic recovery stall further, we see risk that Brent prices could fall below $95 a barrel near-term.”
Twenty of 32 analysts and traders surveyed by Bloomberg this week, or 63 percent, forecast that WTI will decrease through May 31. Seven respondents, or 22 percent, predicted an increase. Five projected no change.
U.S. gasoline stockpiles rose by 3 million barrels last week, according to government data released May 22. They were predicted to fall by 300,000 barrels in a Bloomberg survey. U.S. crude inventories remain 3.2 percent higher than a year ago at 394.6 million barrels even after declining last week, according to the Energy Information Adminstration’s report.
“The tone of the market remains soft,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “Growth in oil demand has been very moderate. This week’s figures in the U.S. were a bit disappointing with a big build-up in gasoline inventories as we start to move into the early part of summer, showing a well-supplied market.”
The Organization of Petroleum Exporting Countries will probably maintain a production target of 30 million barrels a day at its meeting in Vienna May 31, according to 19 out of 20 traders and analysts surveyed by Bloomberg News.
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