- Brent crude futures dropped to lowest level since July 2004
- U.S. supply probably rose 1 million barrels last week: survey
Crude in New York traded at a premium to Brent for the first time since January amid speculation that the lifting of a U.S. export ban may help alleviate the nation’s glut.
West Texas Intermediate oil closed 3 cents higher than Brent. The U.S. passed legislation that ended the 40-year prohibition of crude exports on Dec. 18. U.S. crude inventories probably increased by 1.2 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday.
"The movement of the spread has to be at least in part due to the lifting of the export ban," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "I think the spread is going to fluctuate on either side of parity going ahead."
Crude is heading for a second annual loss on signs the global glut will be prolonged after the Organization of Petroleum Exporting Countries effectively abandoned output limits at a meeting earlier this month. Prices have also reacted to record production in Russia and rising U.S. supplies. U.S. inventories are about 130 million barrels above the five-year seasonal average.
WTI for February delivery rose 33 cents, or 0.9 percent, to close at $36.14 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 33 percent below the 100-day average at 2:57 p.m.
Futures advanced from the close after the American Petroleum Institute was said to report U.S. crude supplies fell 3.6 million barrels last week. WTI traded at $36.41 at 4:41 p.m.
Brent for February settlement slipped 24 cents, or 0.7 percent, to end the session at $36.11 a barrel on the London-based ICE Futures Europe exchange. Futures touched $35.98, the lowest since July 2004. The European benchmark crude traded at as much as a 9-cent discount to WTI on the ICE.
U.S. producers including Continental Resources Inc. and ConocoPhillips had been pressing for an end to the restrictions. While repealing the ban could allow unfettered access to supplies, driving the most important change in the country’s oil policy in more than a generation, buyers may have a limited appetite for the quality of cargoes on offer.
An increase in U.S. crude stockpiles above the 490.9 million barrels reached in April would leave supplies the highest since November 1930, according to weekly and monthly data from the EIA.
"This is light holiday trading and some people are taking profits while they can," said Carl Larry, head of oil and gas for Frost & Sullivan LP. "The underlying picture hasn’t changed. The market still has lower to go because there’s less than phenomenal economic growth and rising supply."
Inventories of distillate, a category that includes diesel and heating oil, probably rose by 2 million barrels last week, while gasoline stockpiles increased by 1.3 million, according to the Bloomberg survey.
Diesel for January delivery dropped 1.2 percent to $1.0876, the lowest settlement since July 2004. Gasoline futures for January delivery dropped 2.9 percent to $1.1749 a gallon, the lowest close since February 2009.
A rebalancing of the oil market may not occur until 2017, Morgan Stanley said in a report on Monday. The prospect of a steeper decline in U.S. output next year is diminishing and market “normalization” remains elusive amid the risk of a persistent oversupply.
"It looks like negative sentiment will dominate going into the new year," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $128 billion of assets.