Brent, WTI Drop on Speculation Global Demand Is Slowing

Brent crude fell to the lowest closing price in more than two years on signs that global demand is slowing while output climbs. The European benchmark’s decline narrowed the premium to West Texas Intermediate oil.

Both grades capped weekly declines after the International Energy Agency cut its global oil demand forecast for 2015 yesterday. The IEA also said Saudi Arabia exported the least in almost three years as purchases slowed from China and Europe.

“The IEA report has set the tone for the market,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The IEA projections showed that demand growth should slow while production continues to grow. They had Saudi exports at the lowest level in years, which is a sign of how weak demand is.”

Brent for October settlement fell 97 cents, or 1 percent, to close at $97.11 a barrel on the London-based ICE Futures Europe exchange. It was the lowest since June 28, 2012. The volume of all futures traded was 2.8 percent above the 100-day average at 2:55 p.m. in New York. The contract slipped 3.7 percent since Sept. 5, capping the biggest weekly drop since the week ended Jan. 3.

Contract Expiration

“It’s important that the biggest move is occurring in the October Brent contract, which is expiring Monday,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “When a contract is about to expire there’s declining volume and open interest. The move can have a lot more to do with order traffic than any specific fundamental.”

WTI for October delivery dropped 56 cents, or 0.6 percent, to settle at $92.27 a barrel on the New York Mercantile Exchange. Futures touched $90.43 yesterday, the lowest level since May 1, 2013. Volumes were 27 percent higher than the 100-day average. Prices declined 1.1 percent this week.

The U.S. benchmark closed at a $4.84 discount to Brent, down from $5.25 yesterday. It was the narrowest since July 22.

“The spread is getting hammered again,” Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston, said by phone. “WTI is rising while the rest of the complex is weak, which reinforces that it’s found a bottom while the other contracts haven’t. It looks like this is about money flows and nothing else.”

IEA Revision

Global oil demand will increase by 1.2 million barrels a day, or 1.3 percent, to 93.8 million barrels a day next year, the Paris-based IEA said in a report yesterday. The expansion is 165,000 barrels a day less than it predicted a month ago.

The U.S. will “deepen and broaden” measures against Russia’s financial, energy and defense industries, President Barack Obama said in a statement yesterday, hours after an announcement by the European Union. The EU added 15 companies, including OAO Gazprom Neft, OAO Rosneft and OAO Transneft, and 24 people to the list of those affected by its sanctions against Russia. This round of sanctions will take effect today.

“We’re taking the new sanctions in stride,” Evans said. “There may be an impact from the sanctions on future Russian oil production. The market will respond when and if that occurs.”

Libyan Revival

Libya’s oil production rose to 850,000 barrels a day yesterday, National Oil Corp. spokesman Mohamed Elharari said by phone from Tripoli. Output in the member of the Organization of Petroleum Exporting Countries will reach 900,000 barrels a day this weekend, Elharari said.

WTI reached a nine-month high in June as Islamic militants advanced across vast areas of northern Iraq. Futures dropped when the rebel advance stalled, sparing the country’s south, home to more than three-quarters of its oil output.

“We’ve been in a great bear market since late June when the offense of the Iraqi insurgency seemed to run out of steam,” Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania, said by phone. “We may have seen the lows for now. It looks like the market has found both fundamental and technical resistance.”

A government report on Sept. 10 showed that U.S. fuel supplies increased last week. Stockpiles of distillate fuel, a category that includes diesel and heating oil, climbed 4.09 million barrels to 127.5 million, the highest in almost a year, according to the Energy Information Administration. Gasoline inventories rose 2.38 million barrels to 212.4 million. Fuel consumption dropped 6.8 percent to 18.6 million barrels in the week ended Sept. 5, the least since June.

Ultra low sulfur diesel for October delivery fell 1.56 cents, or 0.6 percent, to settle at $2.7405 a gallon in New York. It closed at the lowest level since July 10, 2012.

October gasoline futures declined 0.53 cent to close at $2.5188 a gallon. It was the lowest settlement since Nov. 7.

Gasoline pump prices fell 0.9 cent to $3.413 a gallon nationwide yesterday, the least since Feb. 22, according to AAA, the largest U.S. motoring group.

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