Crude Reaches 16-Month High as Discount to Brent Narrows
West Texas Intermediate rose to the highest level in almost 16 months as U.S. jobless claims declined and equities advanced. WTI’s discount to Brent narrowed to less than $1 for the first time since 2010.
Prices climbed 1.5 percent after the Labor Department said jobless claims dropped last week to the fewest since early May. The Standard & Poor’s 500 Index (SPX) reached a record intraday high on better-than-forecast earnings. The Brent-WTI spread contracted to 93 cents as inventories decreased at Cushing, Oklahoma, a major U.S. hub.
“The economy looks good,” said Jeff Grossman, president of New York-based BRG Brokerage and a New York Mercantile Exchange floor trader. “Crude is working its way higher in sympathy with the stock market. Everyone is buying and they can’t hold it back.”
WTI for August delivery gained $1.56 to $108.04 a barrel on the New York Mercantile Exchange, the highest settlement level since March 19, 2012. The volume of all futures traded was 19 percent above the 100-day average for the time of day at 2:46 p.m. Prices are up 12 percent this month.
Brent for September settlement rose 9 cents to end at $108.70 a barrel on the ICE Futures Europe exchange. Volume was 22 percent below the 100-day average. The European benchmark grade’s premium to WTI contracted to 89 cents based on settlement prices for September contracts.
“The Brent-WTI spread is just getting crazy,” said Jacob Correll, a Louisville, Kentucky-based commodity analyst at energy management firm Schneider Electric Professional Services. “The jobless claims give us a boost.”
WTI, the main U.S. crude grade, had been typically the more expensive grade until mid-2010. The convergence between Brent, a gauge for more than half the world’s oil, and WTI shows how improved pipeline networks and the use of rail links have helped to unlock a glut at America’s oil-storage hub at Cushing, the delivery point for WTI futures.
Stockpiles at the hub dropped 3.57 million barrels in the two weeks ended July 12 to 46.1 million, the least since Nov. 30, the Energy Information Administration reported yesterday. Total crude inventories fell by 6.9 million barrels to 367 million as refiners processed the most crude in almost eight years.
“WTI is driven by refining demand for crude oil and the exceptionally strong draws at Cushing,” said Brison Bickerton, head of strategy at Freepoint Commodities LLC in Stamford, Connecticut.
The U.S. jobless claims dropped to 334,000 last week from a revised 358,000 the prior period, the Labor Department said. The median forecast of 49 economists surveyed by Bloomberg was 345,000.
Manufacturing (OUTFGAF) in the Philadelphia region expanded more than forecast in July, the Federal Reserve Bank of Philadelphia’s general economic index showed. The gauge covers covers eastern Pennsylvania, southern New Jersey and Delaware.
“We are seeing a better economy with the jobless claims,” said Bill Baruch, a senior market strategist at commodity trading firm Iitrader.com in Chicago. “The report is better than expected and it helps oil.”
The Standard & Poor’s 500 Index climbed as much as 0.7 percent to an all-time high of 1,693.12.
“There seems to be enough trade flow focused in the market segments that are rising to keep the overall upside open,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in an e-mail. “A drop in U.S. initial claims for unemployment benefits and gains in the S&P 500 are also supporting the crude oil rally.”
Investors also watched Federal Reserve Chairman Ben S. Bernanke’s testimony before the Senate Banking Committee. Equities and commodities gained yesterday after Bernanke told a House committee that there was no preset course for the central bank’s asset purchases, tempering speculation that it would begin to taper stimulus as early as September.
Implied volatility for at-the-money WTI options expiring in September was 20.2 percent, compared with 20.7 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 630,894 contracts as of 2:40 p.m. It totaled 692,223 contracts yesterday, 4.9 percent above the three-month average. Open interest was 1.86 million contracts.
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