Crude Drops a Third Day as China Reduces Demand

West Texas Intermediate oil fell for a third day as China’s crude processing reached the lowest level in eight months in April and OPEC boosted output. Brent crude’s premium to WTI narrowed to a 27-month low.

Prices dropped 0.9 percent as refining in China decreased to 9.36 million barrels a day, according to data published today on the website of the Beijing-based National Bureau of Statistics. That’s the lowest level since August and 8 percent below December’s record. Output in the Organization of Petroleum Exporting Countries rose to a five-month high in April.

“High supplies and weak demand are never a bullish signal,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “People were hoping China would absorb some of the surplus. Now it looks like the surplus is going to get bigger, especially since OPEC is producing more.”

WTI for June delivery fell 87 cents to settle at $95.17 a barrel on the New York Mercantile Exchange. Prices gained for a third week in the five days ended May 10. The volume of all contracts traded was 9.5 percent above the 100-day average.

Brent for June settlement lost $1.09, or 1 percent, to close at $102.82 on the ICE Futures Europe exchange in London. Volume was 8.6 percent below the 100-day average. Brent’s premium to WTI narrowed to $7.65, the lowest based on settlement prices since Jan. 20, 2011.

Chinese Demand

China’s apparent oil demand, or domestic throughput plus net imports, was 9.66 million barrels a day last month, also the weakest since August, the statistics bureau data showed. China Petroleum & Chemical Corp., or Sinopec, the nation’s biggest refiner, will cut processing by 1.5 million metric tons this quarter from an earlier plan because of higher fuel stockpiles, ICIS C1 Energy, a Shanghai-based commodity researcher, said last month.

“We have bearish news coming out of China,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “China’s refinery throughput dropped and also OPEC production rose to a five-month high. The fundamental picture is not supportive for oil.”

Demand fell as industrial output in the world’s second-biggest oil-consuming country rose 9.3 percent from a year earlier last month, versus the 9.4 percent median estimate in a Bloomberg News survey. The U.S. is the world’s leading oil user.

China used 9.76 million barrels a day of oil in 2011, according to BP Plc’s Statistical Review of World Energy.

‘Weaker Demand’

“People are worried about the build in global supplies and weaker demand,” said Bill Baruch, a senior market strategist at in Chicago. “The China data is bearish.”

OPEC produced 30.46 million barrels a day in April, up from 30.18 million in March, the group’s secretariat said May 10. That’s the most since November. Saudi Arabia pumped 9.27 million barrels a day in April, up from 9.13 million in March. That’s the highest since November and compares with the country’s own figure of 9.31 million barrels, based on its communication with the 12-member group.

The Brent-WTI spread has narrowed almost 70 percent from this year’s high of $23.44 on Feb. 8. Brent has dropped this year after the restart of North Sea fields and as the debt crisis in Europe limited economic growth. WTI has gained in 2013 as inventories fell at Cushing, Oklahoma, the delivery point for Nymex futures.

Morgan Stanley predicted that the spread between WTI and Brent will widen as U.S. supplies accumulate.

‘Near Trough’

The gap between WTI and Brent is “near a trough and should widen again, at least marginally, later this year” because of a growing surplus of supply in Houston, Adam Longson, an analyst at Morgan Stanley based in New York, said in a report today.

Oil reduced losses from an intraday decline to $94.47 as the Standard & Poor’s 500 Index erased its decline. The index was little changed after falling as much as 0.4 percent.

Implied volatility for at-the-money WTI options expiring in July was 21.3 percent at 2:37 p.m., up from 20.4 percent on May 10, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 544,880 contracts as of 3:05 p.m. It totaled 818,165 contracts in the previous session, 40 percent above the three-month average. Open interest was 1.77 million contracts.