WTI Drops a Second Day; Goldman Sees Brent Gap Narrowing

West Texas Intermediate crude fell a second day, reversing a third weekly gain, as rising supplies countered signs of economic growth.

Futures slid as much as 2.2 percent, extending yesterday’s 0.2 percent drop, as the dollar gained versus the euro, damping the appeal of commodities priced in the U.S. currency. Brent crude retreated 2 percent, leaving its premium versus WTI at $8.19 a barrel. Goldman Sachs Group Inc. said in a report today that spread may narrow to $5 in the third quarter.

“It is being dragged down by commodities in general,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, who forecasts WTI will average $95 a barrel this quarter. “Gold nosedived first, followed by the rest,” partly because of a stronger dollar, he said.

WTI for June delivery dropped as much as $2.11 to $94.28 a barrel in electronic trading on the New York Mercantile Exchange and was at $94.52 as of 1:20 p.m. London time. The volume of all contracts traded was 80 percent above the 100-day average. Prices declined 23 cents to $96.39 yesterday and are down 1.1 percent this week after rising as much 0.7 percent earlier in the day.

Cushing Bottleneck

Brent for June settlement slipped $2.06 to $102.41 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to WTI closed at $7.72 on May 8, the narrowest difference since January 2011.

The Brent-WTI differential, the largest exchange-traded commodity spread, will shrink as the bottleneck at Cushing, Oklahoma, the delivery point for WTI, eases amid increased pipeline expansion, including the Ho-Ho line connecting the Houston crude market with refineries on the U.S. Gulf Coast, Goldman said in its report. Brent’s premium to WTI may rebound as early as 2014 as the market becomes saturated with light, sweet crude, the bank said.

Stockpiles at Cushing, the largest U.S. oil-storage hub, dropped a second week in the seven days ended May 7 to 49.1 million barrels, according to a May 8 report from the Energy Information Administration.

Total U.S. inventories rose by 230,000 barrels to 395.5 million last week, the highest level since weekly data started in 1982, the EIA said. According to monthly data, they were last at that level in 1931. Output rose to 7.37 million barrels a day last week, the most since February 1992.

Iraq Exports

Oil fell yesterday even after the Labor Department said that claims for jobless benefits last week dropped to the lowest since January 2008.

WTI may extend declines next week, a Bloomberg survey showed. Fifteen of the 33 analysts and traders questioned, or 45 percent, forecast crude will fall through May 17. Thirteen respondents, or 39 percent, predicted an increase, and five projected no change.

The Dollar Index, which tracks the U.S. currency against those of six major trading partners, rose as much as 0.2 percent.

Iraq restored crude exports yesterday to Turkey after repairing a pipeline in the northern city of Mosul. The pipeline from the nation’s northern oil hub of Kirkuk to Turkey’s port of Ceyhan on the eastern Mediterranean Sea has an average flow of 335,000 barrels a day, state-run North Oil said in a statement. The link was damaged May 8 by an explosive charge.

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