West Texas Intermediate slipped from the highest level in 15 months after the International Energy Agency predicted that global oil supply will outstrip demand growth next year.
The retreat in WTI futures allowed the grade’s discount to North Sea Brent to widen again after reaching its narrowest since November 2010. Oil production in non-OPEC countries will expand in 2014 at the fastest pace in 20 years in 2014, the IEA said today. U.S. crude inventories dropped by 9.87 million barrels last week, the Energy Department said yesterday, more than three times as much as the 3.2 million forecast in a Bloomberg News survey.
“The IEA report is highlighting a bearish bias relative to the supply-demand balance as they introduce for the first time a view for 2014,” said Harry Tchilinguirian, BNP’s head of commodity markets strategy in London.
WTI for August delivery declined as much as 82 cents, or 0.8 percent, in electronic trading on the New York Mercantile Exchange, and was $105.91 at 12:56 p.m. London time. Earlier it climbed 93 cents to $107.45 a barrel, the highest since March 27, 2012. The volume of all WTI futures traded was more than double the 100-day average.
The U.S. grade’s discount to Brent, the European benchmark, narrowed in intraday trading to as little as $1.32 a barrel, the smallest gap since Nov. 15, 2010. Brent for August settlement lost as much as 57 cents, or 0.5 percent, to $107.94 a barrel on the London-based ICE Futures Europe exchange.
The Brent-WTI price spread has decreased this year from as much as $23.18 a barrel on Feb. 8 as the U.S. reduced distribution bottlenecks that had boosted inventories. Total U.S. crude inventories declined to 373.9 million barrels, the lowest level since February, in the week ended July 5, the Energy Information Administration said yesterday. Supplies fell by 10.3 million barrels in the prior seven days, the biggest weekly decrease this year, according to the EIA, the Energy Department’s statistical unit.
Refineries operated at 92.4 percent of capacity, up 0.2 of a percentage point from the prior week and the highest rate since August, the EIA data shows. U.S. motor-fuel demand typically rises from the last weekend in May until the Labor Day weekend in early September, the nation’s peak vacation season.
World oil consumption will climb by 1.2 million barrels a day next year, up from 930,000 a day in 2013, the Paris-based IEA said in its first monthly report with forecasts for 2014. Supplies from outside the Organization of Petroleum Exporting Countries will jump by 1.3 million barrels a day amid booming output in North America, curbing the need for crude from the 12-member producer group, according to the report.
Nigeria is “quite comfortable” with current WTI and Brent prices, which may be stable for at least the next 12 months, Petroleum Minister Diezani Alison-Madueke said in an interview in Beijing today. Nigeria is the largest oil producer in Africa.
WTI surged above $100 a barrel on July 3 for the first time since September as Egypt’s political upheaval heightened concern that unrest in the most populous Arab country will spread and disrupt Middle Eastern oil supplies. Shipping traffic through the Suez Canal is continuing normally today, with 43 vessels transiting the waterway, according to the Suez Canal Authority.
Egypt ordered the arrest of the Muslim Brotherhood leader, escalating a confrontation between Islamists and an army-backed interim administration. Egyptian prosecutors sought Mohammed Badie, the general guide of the Muslim Brotherhood, and nine other Islamists on allegations they incited deadly clashes after the ouster of Mohamed Mursi as president. Hamza Zawba, a spokesman for the Brotherhood’s political arm, repeated its position that it won’t engage in talks until Mursi is reinstated.
“The main wildcard is the geopolitical factor, mainly Egypt at this current juncture,” Barnabas Gan, an analyst for treasury research and strategy at Oversea-Chinese Banking Corp. in Singapore.