Brent Crude Falls on German Data as WTI Discount Narrows

Brent crude tumbled after German industrial output unexpectedly fell, signaling an uneven recovery for Europe’s largest economy. The oil’s premium over West Texas Intermediate shrank to the narrowest in a month.

Futures slid 2 percent. German production decreased 1.2 percent in October, the Economy Ministry in Berlin reported. Analysts surveyed by Bloomberg had forecast a 0.7 percent gain. The Brent-WTI spread has tightened by more than $5 in a week as U.S. inventories dropped and TransCanada Corp. (TRP) prepared to start the southern leg of the Keystone XL pipeline.

“The German industrial number certainly contributed to Brent’s weakness,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “Keystone provided some support for WTI and had an obvious impact on the Brent-WTI spread. The spread is likely to narrow further.”

Brent crude for January settlement decreased $2.22 to end the session at $109.39 a barrel on the London-based ICE Futures Europe exchange, the lowest close since Nov. 20. The volume of all futures traded was 5.3 percent above the 100-day average at 4:09 p.m. New York time. The grade settled at $112.62 on Dec. 3, the highest level since Sept. 13.

WTI for January delivery slipped 31 cents, or 0.3 percent, to settle at $97.34 a barrel on the New York Mercantile Exchange. Volume was 15 percent below the average. The European benchmark’s premium to WTI shrank $1.91 to $12.05, the narrowest close since Nov. 11.

German Production

German output declined for a second month in October after a revised 0.7 percent decrease in September. Germany is the world’s eighth largest oil-consuming country, according to the Energy Information Administration, the statistical arm of the U.S. Energy Department. The U.S. is first.

“There has been optimism about both the American and European economies, but these German numbers are raising concern,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The Brent-WTI issue has almost become the most important issue in the market.”

WTI surged 5.3 percent last week and the WTI-Brent spread tightened after U.S. crude inventories declined for the first time in 11 weeks and TransCanada announced plans to start part of its Keystone pipeline to the Gulf Coast from Cushing, Oklahoma, the delivery point for the Nymex futures.

Supplies fell 5.59 million barrels to 385.8 million in the week ended Nov. 28, the EIA said Dec. 4. Refineries operated at 92.4 percent of capacity, the most since September. Utilization rates usually pick up in December after maintenance is performed during the lull in fuel use between the summer driving and the winter heating periods.

Keystone XL

TransCanada began injecting oil into the southern portion of the Keystone pipeline on Dec. 7, Shawn Howard, a spokesman based in Calgary, said in an e-mailed statement. The company will inject 3 million barrels in coming weeks, he said.

The company estimates it will begin taking receipts and delivering oil via the line in mid- to late January, a bulletin showed. The link ending at Port Arthur, Texas, will have a capacity of 700,000 barrels a day.

“Keystone is why the Brent-WTI spread is narrowing,” said Rich Ilczyszyn, chief market strategist and founder of commodities trading firm Iitrader.com in Chicago. “It will probably move below $10 soon. Brent is a little overbought.”

Hedge funds boosted bullish bets on WTI in the week ended Dec. 3 by the most since July as economic growth accelerated in the U.S. Money managers increased net-long positions, or wagers on rising prices, by 7.8 percent to 246,661 futures and options combined, U.S. Commodity Futures Trading Commission data show on Dec. 9.

North Sea

Daily exports of 11 main grades of North Sea crude for loading in January will increase by 3.4 percent, according to loading programs obtained by Bloomberg.

Shipments of Brent, Forties, Oseberg, Ekofisk, Statfjord, Gullfaks, Alvheim, Aasgard, DUC, Grane and Troll blends will total about 64.1 million barrels, or about 2.07 million barrels a day. That compares with about 2 million barrels in revised data for December.

“The North Sea production is coming back and it should put more supplies in the marketplace,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “That’s going to pressure Brent. The Brent-WTI spread continues to come in.”

Implied volatility for at-the-money WTI options expiring in February was 16.2 percent, little changed from 16.1 percent on Dec. 6, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 435,931 contracts as of 4:09 p.m. It totaled 510,791 contracts Dec. 6, 11 percent below the three-month average. Open interest was 1.66 million contracts.

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