West Texas Intermediate rose for a fourth day after hedge funds increased bullish bets on the U.S. benchmark crude amid declining stockpiles.
Futures climbed as much as 0.6 percent in New York after capping a fourth weekly advance. WTI surpassed Brent by as much as 3 cents in intraday trading on July 19 as pipeline and rail shipments helped clear a U.S. supply bottleneck. Crude supplies have dropped by 27.1 million barrels in the three weeks ended July 12, according to the Energy Information Administration.
“Over the long term WTI will trade at prices similar to or above Brent,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London. “Finally, infrastructure investment in the U.S. pipeline system is paying dividends and the distortion of prices in the Midwest is correcting itself.”
WTI for August delivery, which expires today, gained as much as 65 cents to $108.70 a barrel in electronic trading on the New York Mercantile Exchange and was at $108.37 as of 1:19 p.m. London time. The volume of all futures traded was about 35 percent below the 100-day average. The contract settled at $108.05 on July 19, the highest close since March 2012. The more actively traded September future was up 33 cents at $108.20.
Brent for September settlement gained as much as 59 cents, or 0.6 percent, to $108.66 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade was at a premium of 12 cents to WTI for the same month, compared with a premium of 20 cents on July 19.
Brent’s premium to WTI has declined as improved pipeline networks and the use of rail links eased the North American supply glut created by rising production of crude from shale formations. The gap was as much as $23.44 a barrel in February. The U.S. bellwether grade has advanced 18 percent this year, while Brent has slid 2.6 percent as North Sea output stabilized after field maintenance.
Money managers increased net-long positions on WTI, or wagers that prices will climb, by 8 percent to 304,383 futures and options combined in the seven days ended July 16, the U.S. Commodity Futures Trading Commission said in its weekly report on July 19. That’s the highest level since April 2011.
“We’ve shown signs in the past week of developing an investor consensus and that’s put us into a trading range,” Ric Spooner, a chief market analyst at CMC Markets in Sydney, said of concern that the Federal Reserve may reduce stimulus measures that have fueled the U.S. economic recovery. “You’d need some pretty compelling news” for WTI to rise above $110 to $115 a barrel, he said.
WTI’s rally may stall as a technical indicator shows the market is overbought for the longest period in more than 11 years.
The U.S. benchmark’s 14-day relative strength index is above 70 for a 12th day today, according to data compiled by Bloomberg. That’s the longest stretch since March 2002. A reading above that level typically means gains have been excessive and may no longer be sustainable.
Hedge funds and other money managers raised bullish bets on Brent crude to their highest level in a month, according to data from ICE Futures Europe.
Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 181,400 lots in the week ended July 16, the London-based exchange said today in its weekly Commitments of Traders report. The increase of 4,412 contracts, or 2.5 percent, is the third consecutive weekly gain and brings net-longs to their highest level since June 18.