Brent Oil Premium to WTI Declines to Least Since October

Brent crude fell to the lowest level in two weeks as tension increased in Ukraine, shrinking the global benchmark’s premium to West Texas Intermediate to the narrowest since October.

Futures slipped 0.5 percent in London, following declines in European equities as gunmen occupied government buildings in Ukraine’s Crimea region and Russia put fighter planes on alert. WTI’s losses were limited after U.S. government data yesterday showed crude supplies at Cushing, Oklahoma, the contract’s delivery point, declined to a four-month low.

“The unsettled situation in the Ukraine is having an impact on markets,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “Given the country’s location, it’s obviously going to have a bigger impact on Brent than WTI. The spread between Brent and WTI is also being brought in by the Cushing draw.”

Brent for April delivery dropped 56 cents to end the session at $108.96 a barrel on the ICE Futures Europe exchange, the lowest settlement since Feb. 13. The volume of all futures traded was about 16 percent more than the 100-day average at 2:19 p.m. in New York.

WTI for April delivery slipped 19 cents to settle at $102.40 a barrel on the New York Mercantile Exchange. Trading was 16 percent below the 100-day average.

The European benchmark crude’s premium to WTI narrowed to $6.56, the smallest gap since October based on futures settlement prices.

Ukraine Crisis

The crisis in Crimea risks further stoking political tensions within Ukraine and gives Russia a potential excuse to interfere in a country still reeling from an uprising. Unkraine’s interim Prime Minister Arseniy Yatsenyuk is seeking $35 billion in aid from Western lenders.

European stocks declined for a second day as tension escalated in Crimea. The Stoxx Europe 600 Index slipped 0.2 percent to 337.21 at the close of trading.

“There’s a general risk-off tone in Europe as tensions rise in Crimea,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We’re going to see more fun and games with the spread.”

WTI is set for a monthly advance as winter storms bolstered U.S. heating-fuel use and Cushing stockpiles fell with the opening of a new pipeline.

Cushing inventories at the hub decreased by 1.08 million barrels to 34.8 million last week, the Energy Information Administration reported yesterday.

Oil Supplies

TransCanada Corp. (TRP) began moving crude in January to the Texas Gulf Coast from the hub via the southern portion of its Keystone XL pipeline.

Nationwide crude stockpiles rose 68,000 barrels to 362.4 million in seven days ended Feb. 21, the sixth straight gain, according to the EIA, the Energy Department’s statistical arm.

“It looks like we will consolidate for a bit before either moving another leg up, or retreating $2 or $3,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “I’m leaning toward the latter because we’re in a period of seasonally low demand.”

Refiners often idle units at the start of the year after preparing for the heating season in November and December. Operating rates increase in spring as the peak-demand gasoline season approaches. Refinery utilization rates have dropped during the first quarter in eight of the past 10 years, according to EIA data.

U.S. Equities

WTI fell less than Brent as U.S. stocks rose, sending the Standard & Poor’s 500 Index above its record close. Orders for U.S. durable goods excluding the volatile transportation category unexpectedly climbed in January by the most in eight months, according to the Commerce Department.

“We have better-than-expected durable goods orders,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “The market has support around the $100 area.”

Implied volatility for at-the-money WTI options expiring in April was 17.4 percent, up from 16.9 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 382,766 contracts at 3:20 p.m. It totaled 424,444 contracts yesterday, 15 percent below the three-month average. Open interest was 1.65 million contracts, the highest level since Dec. 13.

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

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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