West Texas Intermediate crude fell, capping a monthly drop, before a report that may show that U.S. supplies climbed to a 22-year high. WTI’s discount to Brent oil narrowed to less than $9 a barrel.
Futures retreated 1.1 percent, bringing the April decline to 3.9 percent. Data from the Energy Information Administration tomorrow will probably show stockpiles rose by 1.1 million barrels to 389.7 million last week, the most since July 1990, according to a Bloomberg survey. A report showed U.S. business activity unexpectedly shrank in April for the first time in more than three years.
“It’s really hard to make a case for $100 WTI when we are flush with oil,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Crude oil supplies are already at the second-highest level since World War II. There’s plenty of crude on hand and some of that is going to be boiled into gasoline.”
WTI crude for June delivery declined $1.04 to settle at $93.46 a barrel on the New York Mercantile Exchange. Futures are up 1.8 percent this year. The volume of all contracts traded was 9.3 percent above the 100-day average at 2:37 p.m.
Prices slipped after the American Petroleum Institute reported U.S. inventories rose 5.18 million barrels last week to 388.4 million. Futures tumbled $1.56, or 1.7 percent, to $92.94 in electronic trading at 4:33 p.m. It was $92.97 before the report was released at 4:30 p.m.
Brent oil for June settlement fell $1.44, or 1.4 percent, to $102.37 a barrel on the London-based ICE Futures Europe exchange. Trading was 24 percent higher than the 100-day average.
The European benchmark grade traded at a premium of $8.91 to WTI, down from $9.31 yesterday. The spread narrowed to $8.63 during trading, the least since Jan. 3, 2012.
“The spread has narrowed because of temporary Brent weakness rather than because of any strength in WTI,” said Julius Walker, global energy-markets strategist at UBS Securities LLC in New York. “I still expect Brent to rebound to $110 this quarter and with that the spread will widen again.”
Production at the North Sea Buzzard oil field will resume tomorrow after operations were halted yesterday, according to the platform’s operator Nexen Inc. Buzzard makes up about half of the Forties crude stream. Forties is one of four blends that make up Dated Brent, which is used to price more than half of the world’s oil. The others are Brent, Oseberg and Ekofisk.
U.S. gasoline stockpiles probably dropped 900,000 barrels last week, according to the median of 11 analyst estimates in the Bloomberg survey. Inventories of distillate fuel, a category that includes heating oil and diesel, may have increased 250,000 barrels, according to the survey.
The MNI Chicago Report’s business barometer fell to 49 in April, the lowest level since September 2009, from 52.4 last month. A reading less than 50 signals contraction. The median forecast of 51 economists surveyed by Bloomberg was 52.5.
Oil rose 1.6 percent yesterday on optimism that central banks will boost stimulus. The Federal Reserve may consider maintaining its bond-buying program at a two-day meeting starting today. The European Central Bank may cut its main refinancing rate to a record 0.5 percent on May 2, according to the median of 70 economist estimates in a Bloomberg survey.
“We’re taking a bit of a breather after big moves yesterday in a number of markets,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Oil is moving on external factors. This week we have the ECB and Fed meetings and then the April jobs numbers on Friday.”
The U.S. Labor Department is forecast to report a 148,000 gain in payrolls during April on May 3 after an increase of 88,000 in March, according to a Bloomberg survey.
OPEC crude production climbed in April to a five-month high, led by gains in Saudi Arabia, the United Arab Emirates and Kuwait, according to a Bloomberg survey. Output in the Organization of Petroleum Exporting Countries rose 194,000 barrels, or 0.6 percent, to an average 30.948 million barrels a day this month from a revised 30.754 million in March, the survey of oil companies, producers and analysts showed.
The 12-member producer group is due to meet on May 31 in Vienna to review its output target.
Saudi Arabia, OPEC’s biggest producer, plans to boost capacity to 15 million barrels a day by 2020, Prince Turki Al-Faisal said in an April 25 speech at Harvard University posted on the university’s website yesterday. The country pumped 9.18 million barrels this month and is able to reach 12.5 million within 30 days, according to the Bloomberg survey.
Saudi Oil Minister Ali al-Naimi disputed the prince’s statements while speaking today at the Center for Strategic & International Studies in Washington.
“We don’t see the need to build capacity beyond what we have today,” given increasing production from other nations like the U.S., al-Naimi said.
Implied volatility for at-the-money WTI options expiring in June was 23.6 percent, up from 22.8 percent yesterday.
Electronic trading volume on the Nymex was 530,786 contracts as of 4:34 p.m. It totaled 460,160 contracts yesterday, 21 percent below the three-month average. Open interest was 1.75 million contracts.