WTI Falls to Lowest Against Brent in Almost Seven Months

West Texas Intermediate crude’s discount to Brent reached the widest point in almost seven months on rising U.S. inventories and declining Libyan output.

WTI fell to a four-month low after the Energy Information Administration said supplies rose 4.09 million barrels to 383.9 million last week. A 2.4 million-barrel gain was the median estimate of 11 analysts in a Bloomberg survey. Stockpiles at Cushing, Oklahoma, where WTI is delivered, advanced 2.18 million barrels to 35.5 million, a two-month high. Brent oil traded in London extended its premium to the U.S. grade by more than $2.

“We’re actually moving on the fundamentals,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “There’s an awful lot of crude in the U.S. as a whole and at Cushing, which is putting pressure on WTI, while the problems in Libya are pushing Brent higher.”

Brent for December delivery settled $13.09 higher than WTI, the most since April 2. WTI for December delivery declined $1.43, or 1.5 percent, to $96.77 a barrel on the New York Mercantile Exchange. The European benchmark rose 85 cents, or 0.8 percent, to end the session at $109.86 a barrel on the London-based ICE Futures Europe exchange.

‘Seems Excessive’

The $2.28 widening of the spread was the biggest movement in Brent’s direction against WTI in two years. The price difference in 2013 has ranged from a $23.44 premium for Brent to an 8-cent advantage for WTI.

“The WTI-Brent spread widened because of the backup in supply at Cushing and the problems in Libya,” said Tom Finlon, director of Energy Analytics Group LLC based in Jupiter, Florida. “A move of more than $2 seems excessive, though.”

Nationwide crude supplies gained 7.9 percent in the six weeks ended Oct. 25, according to the EIA, the Energy Department’s statistical arm. The U.S. will account for about 21 percent of global oil demand this year, almost double the estimate for China, the second-largest consumer, according to forecasts from the International Energy Agency in Paris.

Crude production declined 43,000 barrels a day to 7.85 million. Output has surged to the highest level since 1989 as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in the central U.S.

Refinery Operations

Refineries operated at 87.3 percent of capacity, up 1.4 percentage points from the prior week. Utilization rates usually peak during the summer months when U.S. gasoline demand rises and decline in September and October.

“The outsized crude builds should moderate as refinery activity rises in November,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.

Gasoline stockpiles dropped 1.71 million barrels to 213.8 million, the least of 2013. Supplies of distillate fuel, a category that includes heating oil and diesel, declined 3.06 million barrels to 122.7 million.

Total fuel supplied, a measure of demand, climbed 10 percent to 20.1 million barrels a day last week, the most since June, the report showed. Distillate consumption surged 25 percent to 4.16 million barrels a day, the biggest one-week gain since January 2004, while gasoline demand increased 2.9 percent to 9.05 million barrels a day.

“The demand numbers look much stronger than a week ago,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “I don’t see this rate of increases continuing.”

Fuel Prices

Gasoline for November delivery gained 4.1 cents, or 1.6 percent, to settle at $2.6508 a gallon in New York. Ultra-low-sulfur diesel for November delivery rose 1.45 cents, or 0.5 percent, to $2.9786 a gallon.

The profit from making fuel has gained after the report’s release. The margin as expressed by the so-called crack spread climbed to the highest level since August. The profit to process three barrels of oil into two of gasoline and one of heating oil, based on New York futures, rose $2.425 to $18.238 a barrel at 3:41 p.m.

“This is a mixed report,” Kilduff said. “The report is bullish for the crack spread, which should induce refiners to step up refinery utilization rates. This should lead to an end of the precipitous declines in product supplies.”

Libyan Production

Libya can’t restart its 350,000-barrel-a-day Sharara field, Moftah Alamin, a spokesman for Tuareg protesters, said by phone yesterday. Tuareg nomads pressing for official recognition of their language and greater political rights have halted flows from the field, one of Libya’s biggest.

Production in the African country fell to less than 300,000 barrels a day from more than 600,000 on Oct. 21, Mohamed El Elharari, a spokesman for Tripoli-based National Oil Corp., said in a phone interview on Oct. 28.

The Federal Reserve decided to press on with $85 billion in monthly bond purchases, saying it needs to see more evidence that the economy will continue to improve. The Fed’s buying will remain divided between $40 billion a month of mortgage bonds and $45 billion in Treasury securities.

The central bank left unchanged its statement that it will probably hold its target interest rate near zero “at least as long as” unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent.

Implied volatility for at-the-money WTI options expiring in December was 19.7 percent, up from 19.5 percent yesterday, according to data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 576,333 contracts as of 3:40 p.m. It totaled 361,410 contracts yesterday, 38 percent below the three-month average. Open interest was 1.77 million contracts.

Before it's here, it's on the Bloomberg Terminal.