Brent Falls a Second Day to Reduce Premium to WTI

Brent crude fell for a second day, reducing its premium over West Texas Intermediate futures as the euro slid against the dollar.

The European benchmark pared its second monthly gain as the euro declined after climbing to a November high in intraday trading. A weaker euro and stronger dollar reduce crude’s investment appeal. The Brent-WTI spread narrowed for a second day. WTI capped a third monthly decline, the longest losing streak in almost five years.

“The reversal of the euro is weighing on Brent prices,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It seems like there is some profit taking in the Brent-WTI spread. The fundamentals are still bearish for WTI.”

Brent for January settlement decreased $1.17, or 1.1 percent, to end the session at $109.69 a barrel on the London-based ICE Futures Europe exchange and is up 0.8 percent this month. The volume of all futures traded was 38 percent less than the 100-day average at 3:32 p.m.

WTI for January delivery gained 42 cents, or 0.5 percent, to settle at $92.72 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 46 percent below the 100-day average. Prices fell 3.8 percent in November, the longest monthly slide since January 2009. There was no floor trading yesterday because of the Thanksgiving holiday, and the market closed an hour early at 1:30 p.m. today.

The European benchmark grade was at a premium of $16.97 to WTI based on settlement prices. The spread was $19.01 on Nov. 27, the widest in more than eight months.

Euro Declines

The euro slid 0.2 percent to $1.3583 after rising to $1.3622, the highest level since Oct. 31. The European Central Bank unexpectedly cut its key refinancing rate by a quarter point to 0.25 percent on Nov. 7.

“The oil market is following currencies,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago.

Iran and world powers reached an interim accord on Nov. 24 in Geneva on the country’s nuclear program. The agreement limits Iran’s atomic activities in exchange for as much as $7 billion in relief from sanctions over six months. The country’s oil exports will be held to about 1 million barrels a day under restrictions that remain in force.

Brent may fall to $90 a barrel if Iraq raises output and Iran production returns, Mohammed al-Shatti, a Kuwait-based analyst who is the country’s national representative to OPEC, said yesterday.

Libyan Protests

Brent rose in November as protests in Libya, holder of Africa’s largest oil reserves, disrupted production. Output slipped 40,000 barrels a day this month amid feuding militias and protests, a Bloomberg survey showed.

“With Libya’s oil off the market, it directly influences the supply chain,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “That’s going to keep prices elevated.”

Libya’s production slipped to 210,000 this month, the lowest level since September 2011, the Bloomberg survey showed.

Output by the 12-member Organization of Petroleum Exporting Countries decreased 245,000 barrels barrels a day to an average 30.007 million from 30.252 million in October, the survey of oil companies, producers and analysts showed.

Supply losses in Libya and Iraq may offset rising shale oil output in North America and push prices higher next year, the International Energy Agency said on Nov. 14.

U.S. Stockpiles

WTI prices tumbled this month as stockpiles increased. Inventories rose for a 10th week in the seven days ended Nov. 22 as output climbed above 8 million barrels a day, the Energy Information Administration said.

“With the large production and high inventory levels, fundamentals are bearish,” Baruch said. “We are having a little bit of a rebound from Wednesday’s low, but the market trend is down.”

Crude supplies rose 2.95 million barrels to 391.4 million in the week ended Nov. 22, the highest level since June, according to the EIA, the Energy Department’s statistical arm. Stockpiles at Cushing, Oklahoma, the delivery point for WTI contracts, climbed to 40.6 million barrels, the most since July.

Production increased by 45,000 barrels a day to a 24-year high of 8.02 million.

Implied volatility for at-the-money WTI options expiring in January was 17.7 percent, little changed from 17.8 percent on Nov. 27, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 217,248 contracts as of 3:32 p.m. It totaled 442,555 contracts on Nov. 27, 22 percent below the three-month average. Open interest was 1.63 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: Bill Banker at bbanker@bloomberg.net

Bloomberg reserves the right to 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.