WTI Crude Falls to 5-Month Low as Discount to Brent Grows

West Texas Intermediate fell to a five-month low, widening its discount to Brent, on estimates that U.S. inventories rose last week to the most since June.

The spread between Brent and WTI grew $3.51 in three days. Stockpiles in the world’s biggest oil-consuming country climbed for an eighth week as production neared a 24-year high, a Bloomberg survey showed before a government report Nov. 14. WTI’s losses accelerated as an improving economy fueled speculation that the Federal Reserve will curb stimulus.

“The production level is just so strong that we’ll have another increase in supplies,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Concern about whether we’ll lose some of the monetary-policy support is pressuring prices. The Brent-WTI spread is widening.”

WTI for December delivery dropped $2.10, or 2.2 percent, to $93.04 a barrel on the New York Mercantile Exchange, the lowest settlement since May 31. The volume of all futures traded was 34 percent below the 100-day average at 3:53 p.m.

Brent for December settlement slipped 59 cents, or 0.6 percent, to end the session at $105.81 a barrel on the London-based ICE Futures Europe exchange. Volume was 29 percent above the 100-day average.

WTI’s discount to Brent expanded to $12.77 from $11.26 yesterday.

Largest Producer

The U.S. will become the largest oil producer by 2015, overtaking Russia, as it taps rock and shale layers in North Dakota and Texas with the use of horizontal drilling and hydraulic fracturing, the International Energy Agency said today in its annual World Energy Outlook.

“The IEA report today was not particularly new, but did reiterate some bearish trends,” said Soozhana Choi, Deutsche Bank AG’s head of energy research in Washington. “Everyone sees a massive increase in U.S. production, which will swamp logistics before long.”

Domestic output reached 7.9 million barrels a day on Oct. 18, the most since March 1989, according to the Energy Information Administration. It was 7.86 million Nov. 1.

“The market is well supplied,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “U.S. production is going to continue to increase.”

U.S. Supply

U.S. crude stockpiles probably climbed by 800,000 to 386.2 million in the week ended Nov. 8, according to the Bloomberg survey. The EIA, the Energy Department’s statistical arm, is scheduled to release its weekly report a day later than usual this week because of yesterday’s Veterans Day holiday. Cushing inventories rose for a fourth week to a two-month high of 36.5 million barrels in the seven days ended Nov. 1.

“WTI is under pressure because of the builds in supply at Cushing,” Choi said. “Brent is a global benchmark and has always been more sensitive to global events.”

Futures also followed declines in U.S. equities amid concern that the Fed will curb its $85 billion in monthly bond buying in December as the economy improved. U.S. employers added 204,000 workers in October, the Labor Department reported on Nov. 8, higher than the 120,000 gain forecast by economists in a Bloomberg survey.

The Standard & Poor’s 500 Index slid 0.3 percent after falling as much as 0.5 percent. The Dow Jones Industrial Average retreated from a record.

Fed Outlook

Economists forecast the Fed will delay tapering asset purchases until the March 18-19 meeting. Policy makers will probably pare the monthly pace of bond buying to $70 billion at that time, according to the median of 32 estimates in a Bloomberg survey Nov. 8. The group next meets Dec. 17-18.

Brent fell less than WTI as tension in Libya spurred speculation that production will be disrupted. The government issued a 10-day ultimatum to rebels who have closed four export terminals in the east since July, Prime Minister Ali Zaidan said today in a televised news conference.

The state-run National Oil Corp. said disruptions at oil fields and ports have cost Libya $50 billion in lost crude export revenue since start of year. The country, North Africa’s largest oil, produced 450,000 barrels a day of crude in October, up from 300,000 in September, a two-year low, according to data compiled by Bloomberg.

Libyan Disruptions

“Libya is keeping pressure on European oil, and the U.S. has increasingly become divorced from that market,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Implied volatility for at-the-money WTI options expiring in January was 18.7 percent, up from 18.3 yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 724,499 contracts as of 3:55 p.m. It totaled 432,745 contracts yesterday, 25 percent below the three-month average. Open interest was 1.73 million contracts.

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