WTI Crude Falls; Goldman Sees Discount to Brent Widening
West Texas Intermediate crude dropped a second day as weaker-than-forecast U.S. economic data raised concern that growth will slow in the world’s biggest consumer of oil.
Futures declined as much as 1.1 percent in New York, having lost the most in more than a week yesterday as U.S. home sales unexpectedly fell. Goldman Sachs Group Inc. forecast WTI’s discount to Brent will widen amid the glut of oil being transported to the Gulf Coast. Crude stockpiles probably shrank to a six-month low last week, according to a survey before official data tomorrow.
“WTI was overbought,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “Yesterday’s U.S. housing data was negative for sentiment.”
September delivery WTI declined as much as $1.14 to $105.80 a barrel in electronic trading on the New York Mercantile Exchange, and was at $106.28 as of 1:07 p.m. in London. The volume of all futures traded was 4 percent above the 100-day average. The August contract settled 1.1 percent lower at $106.91 when it expired yesterday.
Brent for September settlement gained 2 cents to $108.17 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade was at a premium of $1.88 to WTI, compared with yesterday’s close of $1.21.
Brent’s premium to WTI expanded amid seasonal maintenance work at oilfields in the North Sea. Output from the Buzzard field is about 15,000 barrels a day less than normal, at 185,000 barrels a day, according to two people familiar with the matter who asked not to be identified.
The North Sea grade fell below WTI in intraday trading on July 19 for the first time since August 2010, and again yesterday, without settling as the cheaper of the two. The spread has narrowed as improved pipeline networks and the use of rail links eased the North American supply glut created by rising production from shale formations. WTI traded at a discount of as much as $23.44 a barrel in February.
WTI will probably average $8 to $9 a barrel below Brent in 2014 as the U.S. Gulf Coast becomes “increasingly saturated” with light, sweet crude because of shale projects, Goldman Sachs said in an e-mailed report today.
“The market is still positioned for further WTI-Brent upside, however, given the potential upside for WTI-Brent, the risk-reward of these positions now looks a lot less appealing,” Stefan Wieler, a Goldman Sachs analyst in New York, said in the report dated yesterday. “A sudden repositioning as the market loses confidence in the current WTI strength could therefore put substantial downside pressure on WTI-Brent spreads over the short run.”
U.S. crude inventories probably slipped by 2.5 million barrels last week to 364.5 million barrels, the lowest level since January, according to the Bloomberg survey before tomorrow’s report from the Energy Information Administration. Stockpiles may have decreased for a fourth week, the longest run of declines since August.
Gasoline stockpiles probably climbed by 1.5 million barrels last week, according to the median estimate of nine analysts surveyed. Distillate inventories, including heating oil and diesel, are also expected to have gained by 1.5 million.
The American Petroleum Institute is scheduled to release separate supply data today at 4:30 p.m. in Washington. The industry group collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA, the Energy Department’s statistical arm, for its weekly survey.
Previously owned home sales fell 1.2 percent in June to an annualized rate 5.08 million, the National Association of Realtors reported yesterday. The median forecast of economists in a Bloomberg survey had called for an advance to a 5.26 million pace.
WTI’s 14-day relative strength index remained below 70 for a second day, snapping an 11-day run above that threshold yesterday. It was about 64.9 today, according to data compiled by Bloomberg. A reading above that level typically means gains have been excessive and may no longer be sustainable.
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