WTI Drops From 5-Week High; BofA Predicts Backwardation

West Texas Intermediate slipped from near a five-week high amid rising crude inventories in the U.S., the world’s biggest consumer of the commodity.

Futures fell as much as 0.8 percent. Crude stockpiles advanced 3.7 million barrels last week, the American Petroleum Institute said yesterday. An Energy Department report today may show a gain of 1.3 million, according to a Bloomberg News survey. The euro fell to its weakest level since Nov. 21 against the dollar, undermining the appeal of commodities priced in the U.S. currency. Bank of America Corp. said front-month WTI contracts may start trading at a premium, a price structure known as backwardation.

“The crude inventory builds reported last night are weighing on prices,” said Robert Montefusco, a senior broker at Sucden Financial Ltd. in London, who earlier this month correctly predicted oil prices would decline. “The euro is getting bashed as Europe’s situation looks dire, which is also pressuring oil.”

WTI for May delivery dropped as much as 76 cents to $95.58 a barrel in electronic trading on the New York Mercantile Exchange, and was at $95.96 as of 12:40 p.m. London time. The volume of all futures traded was 17 percent below the 100-day average. The contract climbed $1.53 to $96.34 yesterday, the biggest increase since Dec. 26 and highest close since Feb. 19.

Brent for May settlement gained 10 cents to $109.46 a barrel on the London-based ICE Futures Europe exchange. The benchmark grade was at a premium of $13.51 to WTI after closing yesterday at $13.02, the narrowest settlement since July.

Technical Resistance

The euro fell against the dollar, declining 0.6 percent to $1.2784 at 12:41 p.m. London time. It dropped as low as $1.2762, the lowest level since Nov. 21.

WTI crude prices may shift this year into a so-called backwardated structure, in which immediate supplies are more expensive than later deliveries, according to Bank of America.

The discount on front-month WTI futures, or contango, has narrowed with the activation of the Seaway pipeline, which sends crude from the U.S. storage hub in Cushing, Oklahoma, to refineries on the country’s Gulf Coast, the bank said. The contango was 27 cents a barrel today.

Depressed Consumers

Economic confidence in the euro area decreased more than economists forecast in March, adding to signs that the 17-nation currency bloc’s recession continued into the first quarter. An index of executive and consumer sentiment decreased to 90 from 91.1 in February, the European Commission in Brussels said today. Economists had forecast a drop to 90.5, according to the median of 30 estimates in a Bloomberg News survey.

WTI faces technical resistance at a trend line joining the peaks set by prices in March 2012 and January this year, according to Ric Spooner, a chief market analyst at CMC Markets in Sydney. The indicator is at about $96.14 a barrel today, according to data compiled by Bloomberg. Sell orders are typically clustered near resistance levels.

Gasoline stockpiles in the U.S. slid 2 million barrels, the API said. They are forecast to decline 1 million barrels, according to the median estimate of 12 analysts in the Bloomberg survey. Distillate inventories, a category that includes heating oil and diesel, fell 1.9 million barrels, compared with a projected 850,000 barrels drop in the survey.

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.

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