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WTI Crude Drops a Second Day, Erasing Its Weekly Advance

West Texas Intermediate crude dropped to its lowest price in a month as a report showed U.S. retail sales slid, while concern mounted that the euro area’s debt crisis will worsen.

Futures declined as much as 2 percent in New York as retail sales unexpectedly fell in March by the most in nine months and Cyprus said it will ask the European Union for further financial aid. WTI’s discount to Brent shrank to as little as $10.34 a barrel today, the smallest gap on an intraday basis since Jan. 26, 2012. Oil prices may rebound next week, according to a Bloomberg News survey of analysts.

“The supply balance is still a bit weak,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, who forecasts that WTI will average $96 a barrel this quarter. “We are close to the bottom, as we expect the market to tighten, but the bottoming-out process may take some time.”

WTI for May delivery declined as much as $1.84 to $91.67 a barrel in electronic trading on the New York Mercantile Exchange, the lowest intraday price since March 11, and was at $91.72 at 2:03 p.m. London time. The volume of all futures traded was more than double the 100-day average. Prices have fallen 0.9 percent this week, erasing most of this year’s gain.

Brent for May settlement, which expires on April 15, fell $2.09 to $102.18 a barrel on the London-based ICE Futures Europe exchange. The more actively traded June future slid $1.94 to $102.36. The European benchmark grade had a premium of $10.46 to WTI futures.

Retail Sales

Crude extended its drop as the euro area’s finance ministers met in Dublin. Cyprus’s President, Nicos Anastasiades, will seek to increase the 10 billion euros ($13.1 billion) of aid pledged by the other 16 members of the single currency, said a government official who asked not to be identified.

U.S. retail sales decreased 0.4 percent in March, the biggest drop since June, following a 1 percent gain in February, a Commerce Department report showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg had called for an unchanged reading last month.

The contracting spread between WTI and Brent comes amid a weakening in the structure of the North Sea oil market.

Front-month Brent futures are trading today at a discount to the next month, a structure known as contango, for the fourth time in the past six days after North Sea production climbed with the end of oil-field maintenance and as refiners curbed operations during a seasonal lull in demand.

Contango Opportunity

The shift into contango for the first time in nine months will last a short time and presents an opportunity to bet that the price will rebound, according to banks from Morgan Stanley to BNP Paribas SA.

Morgan Stanley predicted this “latest bout of Brent weakness will reverse,” while BNP Paribas recommended betting that the premium for short-term deliveries will resume as supplies become constrained.

“The underlying factors that had loosened a bit in the Brent market will shift,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London.

WTI may gain next week amid signs of improving U.S. employment, according to a Bloomberg News survey. Fourteen of 36 analysts and traders, or 39 percent, forecast that crude will increase through April 19. Thirteen respondents predicted a decline and nine projected little change. U.S. jobless claims dropped more than forecast in the week ended April 6, a Labor Department report showed yesterday.

Oil in New York has technical support along its middle Bollinger Band on the weekly chart at $91.42 a barrel, according to data compiled by Bloomberg. Futures halted last week’s decline near that level, signaling that buy orders may be clustered around the indicator. Losses tend to accelerate when contracts breach a support level.

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