Brent Oil Drops From 2015 High; Premium Over WTI Narrows

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Crude fell from its highest close this year in London on concern a global surplus will linger. U.S. oil futures narrowed their discount to Brent after an industry survey was said to report a slowdown in stockpile gains.

Brent dropped 4.9 percent. Prices need to fall further before production is sufficiently curbed to balance the market, Goldman Sachs Group Inc. estimates. West Texas Intermediate pared losses after Genscape Inc. was said to report a smaller inventory increase at Cushing, Oklahoma, according to analysts including Phil Flynn, senior market analyst at the Price Futures Group in Chicago. Cushing supplies have more than doubled in the past 12 weeks.

“We still have a lot of bearish fundamentals and Brent is under a lot of pressure,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “The Cushing report is helping WTI. The Brent-WTI spread is narrowing but I think it may be short-lived.”

Brent for April settlement dropped $3.04 to $59.54 a barrel on the London-based ICE Futures Europe exchange. Prices rose 18 percent in February, the biggest monthly gain since May 2009. The European benchmark’s premium to WTI narrowed to $9.95 after widening to the most since January 2014.

WTI crude for April delivery slid 17 cents, or 0.3 percent, to $49.59 a barrel on the New York Mercantile Exchange. Futures advanced 3.2 percent last month. The volume of all futures traded was about 32 percent above the 100-day average for the time of day.

Cushing Stockpiles

An inventory increase of just over 5,000 barrels at Cushing from Feb. 24 to Feb. 27 was reported by Genscape, according to Carl Larry, a Houston-based director of oil and gas at Frost & Sullivan.

Supply at the hub climbed 2.4 million barrels in the week ended Feb. 20 to 48.7 million, the highest since June 2013, according to the Energy Information Administration.

Crude stockpiles in the U.S., the world’s biggest oil consumer, increased by 8.43 million barrels to 434.1 million through Feb. 20, the most in EIA weekly data going back to 1982. The U.S. will produce 9.3 million barrels a day of oil this year, up from 8.63 million in 2014, according to the Energy Department’s statistical arm. Output will climb to 9.52 million in 2016.

Rigs targeting oil in the U.S. fell to 986 last week, the lowest since 2011, according to data from Baker Hughes Inc. last week.

Rig Count

The current rig count implies output growth of 385,000 barrels a day by the fourth quarter from a year earlier, down 55,000 barrels a day from last week’s estimate, Goldman Sachs said in an e-mailed report Monday. The slowdown points to growth decelerating close to levels needed to balance the market, it said.

The Organization of Petroleum Exporting Countries boosted output to 30.6 million barrels a day in February, above its target of 30 million, according to a Bloomberg survey.

Saudi Arabia’s output advanced last month by 130,000 barrels a day to 9.85 million a day, the highest level since September 2013, according to the survey. The country pumps the most crude among the 12 nations of OPEC, which supply about 40 percent of the world’s oil.

Bearish Wagers

“The realization that the Saudis are not cutting production is weighing on prices internationally,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.

Hedge funds raised bearish wagers on WTI by 17 percent to an all-time high of 117,646 contracts in the seven days ended Feb. 24, U.S. Commodity Futures Trading Commission data show. Net-long positions slid 3.1 percent to 202,609 lots, the lowest in seven weeks.

Money managers raised their net-long positions in Brent crude for a third week in the period to Feb. 24, data from ICE showed. Bullish wagers increased to 182,783 contracts, remaining at their highest level since July in futures and options combined.

Also on the Nymex, gasoline futures for April delivery dropped 4.1 percent to $1.8973 a gallon and ultra low sulfur diesel declined 4.4 percent to $1.8873 a gallon.

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