WTI Crude Falls on Supply as Brent Spread Widens

West Texas Intermediate crude fell as rising U.S. inventories overcame optimism that Janet Yellen will maintain Federal Reserve stimulus efforts. WTI’s discount to Brent grew to the steepest since March.

WTI slid 12 cents after touching a five-month low in intraday trading as the Energy Information Administration reported a 4.6 percent surge in supplies at Cushing, Oklahoma, the futures’ delivery point. Crude reduced losses as Yellen, the nominee for Fed chairman, said she will ensure the central bank’s asset purchases don’t end too soon.

“Rising stockpiles are going to keep the pressure on WTI,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at Manulife Asset Management in Boston. “The discount to Brent keeps widening, as a result, and I don’t see it abating anytime soon.”

WTI for December delivery settled at $93.76 a barrel on the New York Mercantile Exchange after falling earlier to $92.51, the least since June 4. The volume of all futures traded was 54 percent above the 100-day average at 4:15 p.m.

Brent for December settlement, which expired today, climbed $1.42, or 1.3 percent, to end the session at $108.54 a barrel on the London-based ICE Futures Europe exchange. The more actively traded January contract rose $1.39 to $108.28. WTI’s discount to the North Sea grade expanded to $14.78, the most since March 21.

Crude Supplies

“There is a lot of oil hitting the market, and that’s pushing the market lower,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The domestic market here is oversupplied. U.S. inventories continue to push up that Brent-WTI spread.”

Cushing inventories at Cushing gained 1.69 million barrels to 38.2 million last week, the highest level since Aug. 9, the EIA, the Energy Department’s statistical arm, said. Stockpiles at the hub have increased 5.58 million barrels in the past five weeks. Total U.S. supplies jumped 2.64 million barrels last week, more than triple the 800,000-barrel average estimate by analysts in a Bloomberg survey.

“The build in Cushing is significant,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “Our domestic production is still increasing, and, fundamentally, we are well supplied. That makes it a very bearish market.”

Shale Production

U.S. crude output climbed to 7.98 million barrels a day last week, the most since January 1989. Horizontal drilling and hydraulic fracturing, or fracking, have unlocked supplies in shale formations in North Dakota, Texas and other states. Production exceeded U.S. imports in October for the first month since February 1995, the EIA said yesterday in a monthly report.

“Supply is still overwhelming,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion.

The EIA also reported that refinery utilization rose 1.9 percentage points to 88.7 percent in the week ended Nov. 8, the biggest increase since June. Four-week average fuel demand increased to the most since 2011. Gasoline supplies dropped to 209.2 million barrels, the lowest level in almost a year.

“We’ve got a lot of refinery demand,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “You also have a lot of supplies getting to the market. The market is finding home now around the $94, $95 level.”

Yellen Comments

Yellen’s testimony comes at a critical moment for monetary policy. The Federal Open Market Committee she is poised to lead is considering whether to begin slowing its $85 billion monthly bond-purchase program, which is pushing the Fed’s assets toward a record $4 trillion.

“It’s important not to remove support, especially when the recovery is fragile and the tools available to monetary policy, should the economy falter, are limited, given that short-term interest rates are at zero,” Yellen said in response to a question during testimony today to the Senate Banking Committee in Washington.

The Standard & Poor’s 500 Index and Dow Jones Industrial Average both closed at records.

“The Fed is not going to end stimulus soon,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Refinery runs are turning up quickly.”

Iran Negotiations

Crude also pared losses as President Barack Obama said it’s not realistic to resolve all issues related to Iran at once and that sanctions against the Persian Gulf country can always be ramped up. Iran and six world powers ended a meeting Nov. 9 without coming to an agreement on the nation’s nuclear program.

Iran was the sixth-largest producer in OPEC last month with 2.6 million barrels a day of output, according to a Bloomberg survey. That’s down 565,000 barrels from June 2012, when it was ranked second. The U.S. and the European Union tightened sanctions on Iran in July 2012 to curb its atomic activities.

Negotiations between Iran and the five permanent members of the United Nations Security Council and Germany will resume Nov. 20 in Geneva.

“Whether crude will rise or fall hinges on the tone of the Iran talks,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “The build in Cushing is significant.”

Implied volatility for at-the-money WTI options expiring in January was 18.3 percent, little changed from yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 840,996 contracts as of 4:16 p.m. It totaled 777,883 contracts yesterday, 34 percent above the three-month average. Open interest was 1.71 million contracts, the lowest level since March 27.

To contact the reporters on this story: Moming Zhou in New York at mzhou29@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net

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

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