West Texas Intermediate crude rose as increasing U.S. refinery activity bolstered demand. The benchmark grade’s discount to Brent oil shrank for the third time in four days.
Futures in New York advanced 6 cents after an Energy Information Administration report yesterday showed that U.S. crude stockpiles fell last week by the most in almost a year as refinery operations climbed. Brent, metals and equities dropped as growth in retail sales added to speculation the Federal Reserve will reduce stimulus.
“The WTI market is relatively robust because of high demand from refiners,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “You’re seeing this impact the WTI-Brent spread, which has narrowed a great deal.”
WTI for January delivery settled at $97.50 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 15 percent below the 100-day average at 3:49 p.m. Futures are up 6.2 percent this year.
Brent for January settlement slid $1.03, or 0.9 percent, to end the session at $108.67 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 8.6 percent lower than the 100-day average.
The European benchmark crude closed at a $11.17 premium to WTI. The spread widened to $19.38 during trading on Nov. 27, the most since March.
U.S. crude inventories dropped 10.6 million barrels in the week ended Dec. 6, according to an EIA report yesterday. That’s the biggest decline since Dec. 28 last year. Stockpiles at Cushing, Oklahoma, the delivery point for WTI, rose by 625,000 barrels to 41.2 million, the highest level since July, EIA data showed.
Refineries operated at 92.6 percent of capacity last week, the highest level since July 12, the EIA report showed.
Stockpiles of distillate fuel, a category that includes heating oil and diesel, climbed 4.54 million barrels last week, the biggest gain since January, according to the EIA, the Energy Department’s statistical arm. Gasoline supplies increased 6.71 million barrels, also the largest advance since January.
Gasoline futures dropped 2.63 cents, or 1 percent, to $2.6348 a gallon on the Nymex, the lowest settlement since Nov. 13. Ultra low sulfur diesel slipped 4.11 cents, or 1.4 percent, to close at $2.9801.
“The rise in refined-product inventories is putting downward pressure on those markets and should keep a lid on WTI,” Kilduff said.
U.S. retail sales rose 0.7 percent last month, the most since June, according to Commerce Department data released in Washington today. Initial U.S. jobless claims increased to 368,000 in the week to Dec. 7 from 300,000 in the preceding week, according to Labor Department figures.
“The retail numbers are definitely supportive of the market,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Any gains will be limited because of concerns that a stronger economy will lead to a slowdown of stimulus by the Fed.”
The Fed may begin cutting stimulus at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg. Fed officials are monitoring progress in the labor market as they debate when to pull back on $85 billion a month in bond purchases, known as quantitative easing. Policy makers have said they may taper “in coming months” if the economy improves as expected.
“The market will probably be treading water until the Fed meets next week,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Prices should stay in a $97-to-$99 a barrel range until then.”
“It will be tough to decisively break through the 200-day moving average,” Schork said. “
Implied volatility for at-the-money WTI options expiring in February was 16.1 percent, up from 16 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 433,695 contracts at 3:48 p.m. It totaled 700,689 contracts yesterday, 23 percent above the three-month average. Open interest was 1.65 million contracts.
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