Brent Falls to Shrink Premium to WTI Before Cyprus Vote

Brent crude fell, shrinking its premium to U.S. oil to less than $15 a barrel for the first time since January, as Cyprus prepared to vote on a bank levy amid renewed concern that Europe’s debt crisis will worsen.

Futures lost as much as 0.8 percent in a second daily decline, narrowing the premium to West Texas Intermediate to the least since Jan. 18. Cypriot lawmakers are scheduled to vote today on how to spread the burden of raising 5.8 billion euros ($7.5 billion) from bank depositors to unlock emergency loans. A government report tomorrow may show U.S. crude supplies rose to the highest level since June.

“The number one story in the markets is still about an island in the Mediterranean with approximately 1 million inhabitants,” said Michael Poulsen, an analyst at Global Risk Management in Middelfart, Denmark, adding that oil prices will probably remain “fairly balanced.”

Brent for May settlement slid as much as 88 cents to $108.63 a barrel on the London-based ICE Futures Europe exchange, trading for $108.95 at 12:54 p.m. local time. Volumes were 17 percent below the 100-day average. The European benchmark was at a premium of $14.88 to WTI for the same month.

WTI for April delivery, which expires tomorrow, was at $93.71 a barrel, down 3 cents, in electronic trading on the New York Mercantile Exchange. The more-active May future slipped 4 cents to $94.07. The volume of all futures traded in line with the 100-day average. The front-month contract climbed 29 cents to $93.74 yesterday, the highest close since Feb. 20.

Price Rebound

Finance chiefs from the 17 euro countries kept the pressure on Cyprus as they signaled flexibility in applying the tax announced three days ago. The levy sparked outrage in the island nation and concern among investors about setting a precedent by breaking a taboo against raiding bank accounts.

“The concern is that the Cyprus situation triggers a response from Italian depositors,” said Guy Wolf, a strategist at London-based commodities broker Marex Spectron Group Ltd. “If Italians begin to fear the safety of their money and we get bank runs, then the problem will escalate rapidly.”

Crude at about $100 a barrel is “reasonable” and won’t choke global economic growth, Saudi Arabian Oil Minister Ali Al-Naimi said yesterday.

“Saudi Arabia does not set the price” of oil, Al-Naimi said in a speech in Hong Kong. “The market sets the price. That said, I’m sure current levels will not deter further economic growth in Asia.”

U.S. Inventories

U.S. crude supplies probably rose for a ninth week, the longest run of increases since May, a Bloomberg News survey showed before the Energy Department report.

Inventories climbed by 2 million barrels to 386 million in the seven days ended March 15, according to the median estimate of seven analysts in the Bloomberg survey. Gasoline stockpiles probably fell by 2 million barrels, the survey shows. Supplies of distillate fuel, a category that includes heating oil and diesel, probably fell 1 million barrels to 119 million, the lowest level this year.

“We’re seeing supply in the U.S. increasing but we haven’t seen any real positive move in demand,” said David Lennox, an analyst at Fat Prophets in Sydney. “There hasn’t been any significant change in the driving factors for the oil market.”

The industry-funded American Petroleum Institute is scheduled to release separate inventory data today. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Information Administration, the Energy Department’s statistics unit, for its weekly survey.

Gasoline Prices

Retail gasoline prices in the U.S. slid to an average $3.696 a gallon, a one-month low, according to data on the EIA’s website yesterday. That compares with $3.71 a week earlier.

WTI has technical resistance along its middle Bollinger Band, around $93.80 a barrel today, according to data compiled by Bloomberg. Futures have halted intraday advances near this indicator the past two days, showing it’s where sell orders may be clustered. A breach of chart resistance at settlement signals further price increases may be sustained.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE