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Oil Slips on Stimulus Outlook as WTI-Brent Gap Shrinks

West Texas Intermediate crude slipped on speculation that the Federal Reserve may curb its stimulus policy after an index showed manufacturers in the New York area felt the most optimistic since March. WTI’s discount to Brent oil shrank to the narrowest level since 2011.

Oil fell 8 cents before Fed policy makers start a two-day meeting tomorrow. The central bank has expanded its balance sheet with $85 billion of asset purchases a month to boost growth. The New York Fed’s general economic gauge rose to 7.8 this month, the most since March. Brent slid more than WTI as Iran’s president-elect pledged to ease his country’s isolation.

“The data had an inverse effect on oil and put fears in the market,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “When we got the strong economic data, everybody said, ‘Wait a second, maybe the Fed is going to be more aggressive in tapering stimulus.’”

WTI for July delivery settled at $97.77 a barrel on the New York Mercantile Exchange, little changed from the four-month high of $97.85 in the previous session. The volume of all futures traded was 7 percent above the 100-day average for the time of day at 4:30 p.m.

Brent for August settlement fell 46 cents, or 0.4 percent, to end the session at $105.47 a barrel on the London-based ICE Futures Europe. Volume was 41 percent below the 100-day average for the time of day.

Brent was $7.44 a barrel more expensive than WTI for August delivery, the narrowest differential based on settlement prices since Jan. 20, 2011.

Fed Concern

Fed Chairman Ben S. Bernanke said May 22 that U.S. policy makers “could” scale back stimulus efforts if the employment outlook shows “sustainable improvement.”

Bernanke is scheduled to speak after the central bank’s decision on June 19. Investors have been watching economic data to determine whether growth is strong enough to prompt the bank to scale back stimulus measures.

Prices also fell as Iranian President-elect Hassan Rohani made overtures to the country’s neighbors today at his first news conference since his weekend victory, a move which may help to defuse decades of tension with Gulf Arab states.

President Barack Obama was said to authorize arming Syrian rebels groups as the administration said it had confirmed the use of chemical weapons by President Bashar al-Assad’s forces during the civil war.

Mideast Conflicts

Syria borders Iraq and is near Iran, countries that together hold almost a fifth of the Organization of Petroleum Exporting Countries’s output capacity, according to Bloomberg estimates. Syria itself produced just 164,000 barrels a day of the 28.3 million pumped in the Middle East last year, according to BP Plc (BP/)’s Statistical Review of World Energy.

“It was the Syrian news that got us above $97 on Friday and there was no additional bullish news over the weekend to push the market higher,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.

In Turkey, thousands of workers went on strike and marched in Istanbul and Ankara in support of protesters, as political turmoil entered its third week after a police crackdown.

“Syria and Turkey are the main trouble spots right now,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, in an e-mail. “Oil prices are driven by supply risks at the moment.”

Economic Data

The New York manufacturing index increased from minus 1.4 in May, the Fed data showed. Readings greater than zero signal expansion in New York, northern New Jersey and southern Connecticut. The median projection in a Bloomberg survey of 51 economists called for a reading of zero.

“The data continued to be positive,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The Fed is going to be really important for the market.”

U.S. retail sales gained the most in three months in May, the Commerce Department said June 13. Jobless claims slid in the seven days to June 8, the Labor Department reported last week.

“The general consensus is that the economy is getting better,” said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The positive signs have outweighed the negative.”

The U.S., the world’s biggest oil-consuming country, used 18.6 million barrels a day of oil last year, or about one-fifth of the world’s total demand, according to BP Plc’s Statistical Review of World Energy.

U.S. Consumption

Gasoline demand averaged 8.8 million barrels a day in the four weeks ended June 7, the most since Sept. 21, the Energy Information Administration, the Energy Department’s statistical arm, said last week.

Implied volatility for at-the-money WTI options expiring in August was 19 percent, unchanged from June 14, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 564,601 contracts as of 4:30 p.m. It totaled 752,559 contracts on June 14, 25 percent higher than the three-month average. Open interest was a record 1.86 million contracts.

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

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