Crude Falls on IEA Demand Outlook; Brent-WTI Gap Narrows

West Texas Intermediate crude fell for the first time in four days as the International Energy Agency trimmed forecasts for global oil demand. Brent’s premium to WTI shrank to the smallest level in 14 months.

Futures tumbled 1.2 percent as the IEA predicted the weakest fuel use in Europe since the 1980s. U.S. supply increased to a 22-year high last week, the Energy Information Administration said yesterday. Brent oil’s premium to WTI shrank below $11 as the European benchmark slumped more than WTI.

“People are disappointed that the IEA revised down its numbers,” said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy. “We are reversing some of the gains that we had in the last three consecutive sessions. The Brent-WTI spread has gone too far too soon.”

WTI for May delivery dropped $1.13 to settle at $93.51 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 7.2 percent lower than the 100-day average for the time of day at 3:33 p.m. The contract rose to $94.64 yesterday, the highest settlement since April 2.

Brent for May settlement slid $1.52, or 1.4 percent, to end the session at $104.27 a barrel on the London-based ICE Futures Europe exchange. Volume was 21 percent above the 100-day average for the time of day.

The European benchmark grade’s premium to WTI shrank to as little as $10.76, the narrowest level since Jan. 25, 2012. Brent has slumped 6.2 percent this year, and WTI is up 1.8 percent.

Brent-WTI Spread

“A big part of this move has been driven by Brent,” Tchilinguirian said. “The likelihood is that we’ll see some rewinding of the spread.”

Worldwide consumption of oil will increase by 795,000 barrels a day, or 0.9 percent, to average 90.58 million barrels a day this year, according to the IEA, the Paris-based adviser to 28 industrialized nations. That’s 45,000 barrels a day fewer than it forecast last month.

The outlook for global oil demand “remains subdued,” the IEA said in its April monthly report as it cut the forecast for a third month. “At the same time, crude supply risk remains elevated.”

European demand will slump by 340,000 barrels a day to 14.1 million. The European debt crisis which began in Greece three years ago has reduced economic growth and fuel demand as it spread to Ireland, Portugal, Italy, Spain and Cyprus.

U.S. consumption will be 18.58 million, down from last year’s 18.61 million, the IEA said.

Global Consumption

“The IEA cut its global oil-demand forecast and it’s kind of weighing on the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The fundamental picture is weak, especially here in the United States.”

The Organization of Petroleum Exporting Countries and the EIA also cut their 2013 estimates this week.

Global consumption will rise by 800,000 barrels a day this year, less than the 840,000 estimated last month, OPEC said in its Monthly Oil Market Report yesterday. The EIA said on April 9 that demand from countries in the Organization for Economic Cooperation and Development will average 45.57 million barrels a day this year, 70,000 barrels less than the March forecast.

“People are worried about the weaker demand and high inventories, and it’s causing a bit of a pullback,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s hard to see if demand is going to recover enough to offset the very high levels of crude inventories.”

Saudi Forecast

Saudi Arabia, OPEC’s largest producer, is more bullish in its demand forecasts than the international organizations. The kingdom expects world consumption to rise about 1 million barrels a day this year and exceed 90 million “for the first time in history,” Ibrahim al-Muhanna, an adviser to Saudi Oil Minister Ali al-Naimi, said yesterday in Kuwait.

U.S. crude stockpiles increased by 250,000 barrels last week, up for the 12th time this year, to 388.9 million, the most since July 1990, the EIA, the Energy Department’s statistical arm, reported. Domestic production gained 30,000 barrels to 7.18 million barrels a day, the fastest rate since July 1992.

Total petroleum demand fell 845,000 barrels a day to 18.1 million, the biggest drop since Jan. 4, the EIA said.

Citigroup ‘Bearish’

Citigroup Inc. said today that downward pressures on crude prices have grown. The bank is “moderately bearish” on oil prices this year because the IEA and other organizations have lowered their forecasts, Seth Kleinman, the bank’s head of energy strategy, said at the Bloomberg Oil Forum in London today.

Implied volatility for at-the-money WTI crude options expiring in June was 19.7 percent, up from 19 percent yesterday. The figure has slipped from 24.7 percent on Feb. 21.

Electronic trading volume on the Nymex was 418,818 contracts as of 3:33 p.m. It totaled 526,133 contracts yesterday, 9.4 percent below the three-month average. Open interest was 1.77 million contracts.

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