West Texas Intermediate’s discount to Brent reached an eight-month high as rising inventories weighed on U.S. futures and limited progress in Iran nuclear negotiations supported the European benchmark.
The spread widened to $16.21 from $14.64 yesterday. WTI declined as rising domestic output added to inventories at record highs for this time of year. Brent reached a six-week high as envoys haggled over language in their efforts to ease the standoff over the atomic ambitions of Iran, whose oil exports have been reduced by sanctions.
“We have increasing crude oil supplies here in the U.S.,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “WTI is under pressure. The market is very skeptical that a deal is going to be achievable. That’s helping Brent disproportionately.”
WTI for January delivery slid 60 cents, or 0.6 percent, to $94.84 a barrel on the New York Mercantile Exchange, after settling yesterday at the highest since Oct. 31. Trading was 12 percent below the 100-day average. WTI’s weekly gain of 1.1 percent was the first since Oct. 4.
Brent for January gained 97 cents, or 0.9 percent, to $111.05 a barrel on the London-based ICE Futures Europe exchange, the highest settlement since Oct. 11. Brent has gained 3.9 percent in three days.
The Brent-WTI spread increased for a third day to $16.21, the most since March 14. The gap has expanded by $5.69 in the past two weeks.
U.S. crude inventories expanded amid a surge in production. Stockpiles climbed by 375,000 barrels to 388.5 million in the seven days to Nov. 15, the Energy Information Administration reported on Nov. 20. That’s the highest level since June 21.
Supplies at Cushing, Oklahoma, the delivery point for WTI futures, increased for a sixth week to 39.9 million barrels, the most since July.
Domestic production was little changed from the Nov. 8 level of 7.98 million barrels a day, the highest in 24 years. U.S. crude production surpassed imports in October for the first time since 1995, according to the EIA.
“We have more than enough oil out there and prices should be lower,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors.
Iran and the five permanent members of the United Nations Security Council plus Germany are negotiating to break the nuclear deadlock and help remove sanctions that might resume oil exports. Differences remain over how extensively powers can recognize Iran’s uranium-enrichment work, which the Security Council has ordered stopped. Failure to strike an accord increases the prospects that U.S. legislators will seek to impose more sanctions. The talks were scheduled to end today.
“Things could get worse in Iran and it’s going to be supportive for Brent,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “WTI is having a hard time moving higher because there is so much supply.”
Iran was the sixth-largest producer in the Organization of Petroleum Exporting Countries last month with 2.6 million barrels a day, according to a Bloomberg survey. That’s down 565,000 barrels from June 2012, when it was ranked second.
WTI may decline next week on rising inventories. Fourteen of 29 analysts, or 48 percent, forecast crude will fall through Nov. 29. Nine predicted a gain.
Implied volatility for at-the-money WTI options expiring in January was 16.1 percent, down from 16.4 percent yesterday, according to data compiled by Bloomberg.
Electronic trading volume on the Nymex was 458,111 contracts as of 2:54 p.m. It totaled 481,981 contracts yesterday, 16 percent below the three-month average. Open interest was 1.63 million contracts.
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