WTI Crude Caps Fourth Weekly Advance and Surpasses Brent

West Texas Intermediate capped a fourth weekly gain as the U.S. showed signs of economic recovery and as crude inventories dropped. WTI exceeded Brent for the first time since 2010 in intraday trading.

Prices settled at a 16-month high as Moody’s Investors Service revised the U.S.’s Aaa credit-rating outlook to stable from negative. Crude supplies tumbled 27.1 million barrels in three weeks ended July 12, the most in weekly statistics dating to 1982. WTI surpassed Brent by as much as 3 cents as pipeline and rail shipments helped clear a U.S. bottleneck.

“Improved economic conditions here in the United States continue to boost the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We have a tightening supply outlook. The Brent-WTI spread has moved a lot. Nothing seems to be able to stop it.”

WTI for August delivery, which expires on July 22, settled up 1 cent at $108.05 a barrel on the New York Mercantile Exchange, the highest level since March 19, 2012. Trading was 28 percent above the 100-day average for the time of day at 2:48 p.m. Prices increased 2 percent this week, extending July’s gain to 12 percent. The more-active September contract advanced 6 cents to $107.87.

Brent for September settlement slipped 63 cents, or 0.6 percent, to end the session at $108.07 a barrel on the ICE Futures Europe Exchange. Volume was 1.1 percent above 100-day average. The contract fell below WTI in intraday trading for the first time since Aug. 17, 2010. Brent settled at a 20-cent premium to the U.S. benchmark.

U.S. Economy

Growth in the U.S. economy, “while moderate,” is proceeding even as the U.S. has enacted tax increases and spending reductions that have improved the nation’s debt trajectory, Moody’s said yesterday in a statement. Moody’s assigned the negative outlook in August 2011, warning of a possible downgrade on concern that fiscal discipline was eroding and the economy was weakening.

“We had a little bit of a risk-on trade based on economic outlook,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Inventories have come down a lot.”

U.S. crude stockpiles dropped to 367 million barrels last week, the lowest level since Jan. 18, the Energy Information Administration reported July 17. Stockpiles at Cushing, Oklahoma, the biggest oil-storage hub, decreased 882,000 barrels to 46.1 million, according to the EIA, the Energy Department’s statistical arm.

Improving Transport

The convergence between Brent, a pricing benchmark for more than half the world’s oil, and WTI shows how better pipeline networks and the use of rail have helped to unlock a supply glut at Cushing. WTI, the bellwether U.S. crude, had typically been the more expensive grade until mid-2010.

“The key factor driving WTI is the narrowing Brent-WTI spread, which is signaling the bottleneck is alleviating,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion.

Crude also advanced as the dollar weakened after Federal Reserve Chairman Ben S. Bernanke damped speculation that a reduction of U.S. monetary stimulus was imminent. The currency fell as much as 0.3 percent to $1.3154 per euro from yesterday’s $1.3109. A weaker dollar boosts oil’s investment appeal.

Relative Strength

Prices fell 0.5 percent in intraday trading on speculation this month’s gain has been excessive. WTI’s 14-day relative strength index was 75.2, staying above 70 for an 11th day, a sign that prices may decline. The streak of 11 days over 70 is the longest since 2002. Some investors start selling contracts when the reading crosses that threshold, seen as a sign that speculative buying has driven prices unreasonably high.

“The speed of the rise is too fast,” said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Investors were a little overexuberant.”

Implied volatility for at-the-money WTI options expiring in September was 21.8 percent, compared with 20.2 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 693,771 contracts as of 3:12 p.m. It totaled 715,326 contracts yesterday, 8.5 percent above the three-month average. Open interest was 1.86 million contracts.

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