West Texas Intermediate crude rose the most in two weeks as the dollar weakened against the euro and the U.S. boosted its 2013 price forecast.
Futures gained 0.9 percent after the dollar slipped to a three-week low against the euro, raising dollar-denominated oil’s appeal as an investment alternative. The Energy Information Administration, the Department of Energy’s statistical arm, increased its WTI estimate for the year by 2.2 percent in a monthly report. May WTI rebounded after failing to breach $91.84, the March 21 intraday low.
“You have a weaker dollar today, and the currencies are really leading the way,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “We got a bit of a boost from the DOE report. Crude did not make a new low below $91.84, and it’s building up momentum.”
WTI oil for May delivery advanced 84 cents to settle at $94.20 a barrel on the New York Mercantile Exchange. It was the biggest rally since March 26. Prices are up 2.6 percent this year. Trading was 8.5 percent above the 100-day average for the time of day at 4:45 p.m.
Prices pared gains after the American Petroleum Institute said inventories grew 5.06 million barrels last week to 390.7 million, the biggest stockpile since July 1981. The May contract rose 59 cents to $93.95 in electronic trading at 4:45 p.m. It was $94.08 before the API report was released at 4:30 p.m.
Brent crude for May settlement rose $1.57, or 1.5 percent, to $106.23 a barrel on the London-based ICE Futures Europe exchange. Trading was 33 percent above the 100-day average for the time of day.
The dollar fell as much as 0.7 percent to $1.3103 per euro, the lowest level since March 15. The currency has dropped since an April 5 report from the Labor Department showed a slowdown in U.S. jobs growth, spurring speculation that the Federal Reserve will extend its bond-buying stimulus program, known as quantitative easing.
“The dollar is weaker and that’s helping oil,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors.
WTI crude will average $93.92 a barrel this year, up from the March estimate of $91.92, the EIA said today in its monthly Short-Term Energy Outlook. Prices averaged $94.12 last year.
Brent, the benchmark grade for more than half the world’s crude, will average $107.96 a barrel in 2013, down 37 cents from last month’s forecast. Brent’s premium to WTI will average $14.04 this year. The spread was $17.53 a barrel last year, according to the report.
“We raised our WTI forecast to reflect the narrowing spread with Brent,” said Tancred Lidderdale, an economist with the EIA in Washington who helped write the report.
Goldman Sachs Group Inc. recommended that investors buy September WTI futures and sell the same-month Brent contract, according to a report today. The bank revised its previous suggestion for a similar trade using June contracts.
Crude output in Texas and New Mexico has been lower than expected over the past three months, reducing the risk that the Texas Gulf Coast will be “oversaturated” with light crude and depress WTI prices, Stefan Wieler, an analyst at Goldman in New York, said in the report.
The spread based on front-month contracts widened to $12.03 a barrel from $11.30 yesterday, the narrowest gap since June 22 on a settlement basis.
“The pressure is to the downside for the Brent-WTI spread,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “In the longer term, we do expect it to narrow.”
WTI fell earlier on a forecast that crude inventories probably gained for a 12th time last week.
Crude stockpiles probably grew by 1.5 million barrels to 390.1 million in the week ended April 5, after reaching the highest level since July 1990 in the previous week, according to the median of 11 analyst estimates in a Bloomberg survey before an EIA report tomorrow.
Futures dropped the most in six months last week as supplies grew and production stayed above 7 million barrels a day, the most since 1992. Inventories have risen every April since 1999.
“We are still in the build season, and the very strong domestic production level is adding further fuel to this,” Correll said.
Implied volatility for at-the-money WTI crude options expiring in May was 19.2 percent, down from 20 percent yesterday. The figure has slipped from 24.7 percent on Feb. 21.
Electronic trading volume on the Nymex was 502,416 contracts as of 4:47 p.m. It totaled 471,677 contracts yesterday, 18 percent below the three-month average. Open interest was 1.76 million contracts.