Crude Oil Heads for Weekly Decline Before U.S. Employment Report

Oil headed for a weekly decline before a report that may show U.S. employers hired fewer workers last month than in December. Brent crude’s premium to the New York price is set for the largest weekly gain in a month.

Futures traded near a six-week low after dropping a fifth day yesterday, the longest losing streak since August. The U.S. added 140,000 jobs in January after gaining 200,000 in December, according to a Bloomberg News survey of economists before a Labor Department report today. London-traded Brent’s premium to West Texas Intermediate crude, the U.S. benchmark, widened 30 percent this week to the most since Nov. 12.

“Payroll numbers will dominate macro-driven trading today,” said Andrey Kryuchenkov, an analyst at VTB Capital in London, who predicts prices may decline further. “Global demand growth is slowing this year, while developed nations will see contracting consumption.”

Crude for March delivery was at $96.28 a barrel, down 8 cents, in electronic trading on the New York Mercantile Exchange at 12:36 p.m. London time. The contract fell 1.3 percent to $96.36 yesterday, the lowest settlement since Dec. 19. Prices are down 3.3 percent this week, the most since the five days ended Dec. 16.

Brent oil for March settlement climbed as much as 0.5 percent to $112.64 a barrel on the ICE Futures Europe exchange. It gained 0.5 percent yesterday and is up 0.7 percent this week. The European benchmark contract’s premium to WTI increased to $16.30, the widest since Nov. 11.

Cushing Supplies

West Texas futures fell this week on signs of surging stockpiles at the Cushing, Oklahoma, delivery point for the New York contract as output increased in Canada and North Dakota. Inventories at Cushing climbed by 1.48 million barrels to 30.1 million in the week ended Jan. 27, the highest level since Dec. 16, according to U.S. Energy Department released Feb. 1.

The supply increase has pushed the March contract to a discount of $2.61 a barrel to December futures. This market situation, known as a contango, means later deliveries are more expensive than prompt supplies. As recently as Jan. 3, the nearer-term contract was at a premium of $1.85.

As stockpiles at Cushing grew 6.5 percent in the past two weeks, WTI’s discount to Brent crude, the European benchmark, widened to $15.71 a barrel Feb. 2 from $9.90 on Jan. 18 on the ICE Futures Europe exchange in London.

The increase in the spread is driven by financial investors moving from WTI to Brent, according to analysts at JBC Energy GmbH. Volumes in the ICE Brent contract have surged 30.6 percent in the past year, compared with a 4.3 percent increase in WTI trades on Nymex, Vienna-based JBC said in a note today.

Demand Driven

“Investors will be watching the release of the jobs data, which is a key leading indicator for economic activity and therefore energy demand,” said Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Pty in Sydney. “Concerns about demand has led to some pretty heavy selling in West Texas. Brent has held its ground, so we have seen that spread widen.”

U.S. gasoline consumption decreased to 7.97 million barrels a day, the lowest since September 2001, according to the Energy Department data. Stockpiles of the fuel increased 3.02 million barrels last week, the report showed.

The Organization of Petroleum Exporting Countries will increase shipments this month on rising winter demand in the northern hemisphere, according to tanker-tracker Oil Movements.

OPEC will ship 23.52 million barrels a day in the four weeks to Feb. 18, 1.1 percent more than the 23.26 million barrels in the period to Jan. 21, the Halifax, England-based researcher said yesterday in an e-mailed report. The figures exclude Angola and Ecuador.

SK Innovation Co., South Korea’s largest refiner, is seeking alternative supplies to feed its refineries because it anticipates government sanctions against trading with Iran may be extended to crude oil imports. The Seoul-based company may increase crude purchases on the spot market or shift to other suppliers, Jo Eun Hee, the head of SK’s energy planning unit, told investors in a conference call from Seoul today.

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