Brent Crude’s Premium to WTI Narrows on Demand Concern

Brent crude’s premium to West Texas Intermediate narrowed to near a four-month low on concern slowing emerging market growth will sap global demand while U.S. prices are buoyed by cold weather and the start of a pipeline.

Brent declined for a third day to near its lowest intraday level in almost three months. The European benchmark was at a premium of $8.94 a barrel to WTI on the ICE Futures Europe exchange, compared with $9.61 yesterday. The gap contracted to as little as $8.06 yesterday, the least since Oct. 18. Tightening credit conditions in China could curb fuel use in the country, threatening as much as half of this year’s global oil demand growth, according to Citigroup Inc.

Snow will start falling across Boston and New York again later today, the National Weather Service said. U.S. distillate supplies, including diesel and heating oil, probably fell by 2.2 percent last week, according to a Bloomberg survey. About $2.9 trillion has been wiped from the value of equities worldwide this year, as China’s growth slows and anti-government protests spread in emerging markets from Thailand to Ukraine.

“Oil prices are no longer able to ignore the headwind from the financial markets,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “WTI is profiting from the low temperatures in the U.S., which are causing the already low distillate stocks to fall even further.”

Brent for March settlement slid as much as 53 cents, or 0.5 percent, to $105.49 a barrel on the London-based ICE exchange. It settled at $106.04 yesterday, the lowest since Nov. 12.

WTI Rally

WTI for March delivery advanced as much as 51 cents to $96.94 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.59 as of 1:32 p.m. London time. The contract fell $1.06 to $96.43 yesterday, the lowest close since Jan. 27. Prices are down 1.8 percent this year. Trading volumes for all WTI contracts on Nymex were about 43 percent below their 100-day average.

“We continue swinging with headlines, under pressure from risk aversion in the broader market,” said Andrey Kryuchenkov, an analyst at VTB Capital in London.

The southern leg of Keystone XL, which, began moving crude to the Gulf Coast of Texas from Cushing last month, may reduce “bloated” stockpiles at the storage hub to as little as 20 million barrels by April, according to Citigroup Inc. That would be about half current levels, based on Energy Department data.

Pipeline Volumes

The pipeline was initially flowing at 288,000 barrels a day and will increase over the course of the year toward its 700,000-barrel capacity, executives said in a Jan. 22 news conference at the company’s headquarters in Calgary.

“Volumes could be in the 400,000 barrel-a-day range soon, barring delays and problems,” analysts at Citigroup including Seth Kleinman in London wrote in a report yesterday. “Cushing can begin to draw down to the 20 to 30 million barrel level by April as the Keystone Gulf Coast pipeline adds significant outflow capacity to the bloated storage hub.”

Crude stockpiles probably gained by 2.25 million barrels last week, a Bloomberg News survey of analysts showed before a report from the Energy Information Administration, the Energy Department’s statistical unit, tomorrow.

Gasoline stockpiles rose by 1.35 million barrels in the week ended Jan. 31, according to the median estimate of 10 analysts surveyed before the EIA report tomorrow. Distillate inventories, including heating oil and diesel, are predicted to have declined by 2.5 million barrels.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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