Crude oil advanced, with West Texas Intermediate surpassing $100 a barrel for the first time in nine months, on shrinking U.S. stockpiles and concern that political turmoil in Egypt may disrupt Middle Eastern supply.
Futures rose as much 2.6 percent in New York after climbing to the highest settlement price in 14 months. Crude inventories fell by 9.4 million barrels last week, the American Petroleum Institute said yesterday. A government report today may show a drop of 2.25 million, according to a Bloomberg News survey. Egypt’s President Mohamed Mursi rejected an ultimatum by the armed forces to solve the country’s political impasse, fanning concern that unrest may interrupt oil shipments through the Suez Canal or Suez-Med pipeline.
“People are expecting to see a large draw-down in inventories in Cushing, and that is supporting the WTI market much more than the Brent market,” Torbjoern Kjus, a senior oil analyst at DNB ASA in Oslo, said by phone, referring to the Oklahoma town serving as a U.S. storage hub. “The Brent market is supported by geopolitical risks due to tensions in Egypt.”
WTI for August delivery increased as much as $2.58 to $102.18 a barrel in electronic trading on the New York Mercantile Exchange and was at $101.58 at 1:33 p.m. London time. The volume of all futures traded was more than three times the 100-day average. The contract gained $1.61 to $99.60 yesterday, the highest close since May 2012.
Brent for August settlement rose as much as $1.75, or 1.7 percent, to $105.75 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade was at a premium of $4.06 to WTI. The spread was $4.40 yesterday, the narrowest based on closing prices since Jan. 4, 2011. It was more than $23 in February.
UBS AG sees the spread widening again to $12 a barrel in the third quarter this year and narrowing later. Brent is set to rebound to $110 a barrel in the third quarter “on stronger short-term fundamentals and rising geopolitical risk,” Julius Walker, the bank’s global energy markets strategist, said in an e-mailed report today.
Natalie Rampono, a Melbourne-based commodity research analyst at Australian and New Zealand Banking Group Ltd., said WTI may climb to a premium of 50 cents a barrel to Brent “in the short term,” in a separate report today.
Mursi called on the Egyptian military to withdraw its ultimatum, signaling he will stay on in the face of mass protests seeking his ouster. The armed forces pledged on July 1 to impose its own plan if he didn’t end the crisis within 48 hours.
Egypt controls the Suez Canal and the Suez-Mediterranean Pipeline, through which a combined 2.24 million barrels a day of oil was shipped from the Red Sea to Europe and North America in 2011, according to the U.S. Energy Information Administration. The Middle East accounted for 35 percent of global oil output in the first quarter of this year, according to the International Energy Agency’s monthly oil market report published on June 12.
“Given that Mursi is rejecting the army’s demand to step down, this is going to, in my opinion, throw the country into a crisis with no clear resolution,” said Andy Lipow, the president of Lipow Oil Associates LLC, a consultant in Houston. “The market reaction will be bullish due to the uncertainty of the event and of what may ultimately happen.”
WTI last rallied above $100 a barrel on Sept. 14 in intraday trading after the Federal Reserve announced it would buy mortgage-backed securities to encourage economic growth. Front-month futures last settled above $100 on May 3, 2012.
U.S. gasoline stockpiles declined by 183,000 barrels in the week ended June 28, the API report shows. The report by the EIA will show supplies increased by 700,000 barrels, according to the median estimate of 11 analysts surveyed by Bloomberg. The so-called U.S. summer driving season, when demand for motor fuel peaks, runs from late May to early September.
Distillate inventories, including heating oil and diesel, decreased by 2.3 million barrels, the industry-funded API said. They are forecast to climb by 1 million in the EIA survey.
The API in Washington collects supply information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA, the Energy Department’s statistical arm. Its Weekly Petroleum Status Report is scheduled for release today at 10:30 a.m. U.S. Eastern time.
Nigeria’s National Union of Petroleum and Natural Gas Workers suspended a strike called on July 1 over what it said were unfair labor practices at units of Royal Dutch Shell Plc, Chevron Corp. and Eni SpA, the union’s president, Achese Igwe, said today in a televised news conference.