WTI Rises to Highest in 16 Months as Brent Spread Narrows

West Texas Intermediate climbed to its highest in 16 months and was poised for a fourth weekly gain on signs the U.S. economic recovery is gaining strength. WTI’s discount to Brent shrank to the narrowest since October 2010.

Futures advanced as much as 0.6 percent in New York, heading for a 2.5 percent increase this week, amid China’s plan to remove the floor on lending rates offered by the nation’s financial institutions from tomorrow. The WTI-Brent spread shrank to as little as 67 cents a barrel, from more than $20 in February. The number of Americans who filed for jobless benefits dropped to the fewest since early May, the Labor Department said yesterday. WTI may drop next week on speculation gains have been excessive, according to a Bloomberg News survey.

“WTI may start trading at a premium to Brent,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. “One might argue it’s the better outlook for the U.S. economy versus the rest, and lower stockpiles” supporting WTI while “lower geopolitical risks weigh on Brent.”

WTI for August delivery rose as much as 98 cents to $109.02 a barrel in electronic trading on the New York Mercantile Exchange, the highest intraday level since March 2, 2012, and was at $108.91 as of 1:24 p.m. London time. The volume of all futures traded was 9 percent below the 100-day average. The more actively traded September contract gained 85 cents to $108.66.

China Lending

Brent for September settlement on the ICE Futures Europe Exchange gained 45 cents to $109.15 a barrel. The European grade was at a premium of 49 cents to WTI for the same month.

The People’s Bank of China will also remove the cap on lending rates offered by rural cooperatives, while maintaining its differentiated mortgage policy, according to a statement on its website today. The actions are effective tomorrow.

The convergence between Brent, a pricing benchmark 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 supply glut at Cushing, Oklahoma, the biggest oil-storage hub. WTI, the bellwether U.S. crude, had typically been the more expensive grade until mid-2010.

Cushing Stockpiles

Stockpiles at Cushing fell 3.57 million barrels in the two weeks ended July 12 to 46.1 million, the lowest level since Nov. 30, the Energy Information Administration reported on July 17. Total crude inventories declined by 16.8 million over the same period to 367 million.

The number of workers who filed applications for unemployment insurance payments slid by 24,000 to 334,000 in the week to July 13, the Labor Department data showed. Economists surveyed by Bloomberg forecast a median 345,000.

“The U.S. economy is doing much better than Europe and Asia, including China,” Ken Hasegawa, an energy-trading manager at Newedge Group in Tokyo, said by phone. “Fundamentally WTI will be supported. The WTI-Brent spread may hit parity next week as a lot of people are betting on it now.”

The U.S. is the largest oil consumer and accounted for about 20 percent of global demand last year, according to the International Energy Agency’s most recent monthly report on July 11. China, the second-biggest, used 11 percent.

Gasoline futures rose as refiners in California shut plants for unplanned work. The contract for August delivery climbed as much 1.7 percent to $3.1632 a gallon in electronic trading in New York, before paring about half of the gain.

Tesoro Corp. is performing unscheduled maintenance at its Golden Eagle refinery after a line leak, according to Tina Barbee, a San Antonio-based spokeswoman. Royal Dutch Shell Plc said operations at its Martinez plant have been “returned to normal” after a unit was shut on July 14.

Sentiment Survey

WTI may drop next week on signs that this month’s rally of 12 percent has been excessive, a Bloomberg News survey showed. Nineteen of 33 analysts and traders, or 58 percent, forecast futures will decline through July 26. Seven respondents, or 21 percent, predicted a gain, while another seven projected no change. Last week, half of those surveyed estimated an increase.

Political changes in Egypt spurred oil price gains earlier month though shipments have continued uninterrupted through the Suez Canal, a main artery of westbound cargoes of Middle Eastern crude. Supporters and opponents of toppled president Mohamed Mursi have called for rival protests today as the fault lines dividing them deepen.

About $1.3 billion in annual U.S. military aid for Egypt would be maintained pending certification from the State Department under a draft State-Foreign Operations spending bill unveiled yesterday by the House Appropriations Committee.

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