BLBG:WTI Drops a Second Day; Goldman Predicts Wider Discount to Brent
West Texas Intermediate crude dropped a second day as weaker-than-forecast U.S. economic data raised concern that growth will weaken in the world’s biggest consumer of oil.
Futures declined as much as 0.9 percent in New York, having lost the most in more than a week yesterday as U.S. home sales fell. The Federal Reserve will trim monthly bond-buying to $65 billion from $85 billion in September, a Bloomberg News survey showed. Goldman Sachs Group Inc. forecast WTI’s discount to Brent will widen amid a supply glut on the Gulf Coast. U.S. crude stockpiles probably shrank to a six-month low last week, according to another survey before official data tomorrow.
“WTI was overbought,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “Yesterday’s U.S. housing data was negative for sentiment. We still have no clear indication yet on when tapering of quantitative easing is going to start.”
WTI for September delivery declined as much as 94 cents to $106 a barrel in electronic trading on the New York Mercantile Exchange, and was at $106.20 as of 9:49 a.m. in London. The volume of all futures traded was 5 percent below the 100-day average. The August contract expired yesterday after losing 1.1 percent to $106.91.
Brent for September settlement slipped 31 cents to $107.84 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade was at a premium of $1.64 to WTI, compared with yesterday’s close of $1.21.
Crude Supplies
Half of the 54 economists polled by Bloomberg in the July 18-22 survey predicted the decrease in bond purchases by the Fed to $65 billion, up from 44 percent in last month’s poll. Even as expectations of a September tapering rose, 10-year Treasury yields continued to fall last week from an almost two-year high after Bernanke said reducing bond-buying wouldn’t constitute policy-tightening.
Brent fell below WTI in intraday trading on July 19 for the first time since August 2010. The gap between the two benchmarks has decreased as improved pipeline networks and the use of rail links eased the North American supply glut created by rising production of crude from shale formations. WTI traded at a discount of as much as $23.44 a barrel in February.
Supply Saturation
WTI will probably average $8 to $9 a barrel below Brent in 2014 as the U.S. Gulf Coast becomes “increasingly saturated” in light, sweet crude because of shale-oil output growth, Goldman Sachs said in an e-mailed report today.
“The market is still positioned for further WTI-Brent upside, however, given the potential upside for WTI-Brent, the risk-reward of these positions now looks a lot less appealing,” said Stefan Wieler, a Goldman analyst in New York. “A sudden repositioning as the market loses confidence in the current WTI strength could therefore put substantial downside pressure on WTI-Brent spreads over the short run.”
U.S. crude inventories probably slipped to 364.5 million barrels last week, the lowest level since January, according to the Bloomberg survey before tomorrow’s report from the Energy Information Administration. Stockpiles may have decreased for a fourth week, the longest run of declines since August.
Gasoline stockpiles probably climbed by 1.5 million barrels last week, according to the median estimate of nine analysts surveyed. Distillate inventories, including heating oil and diesel, are also expected to have gained by 1.5 million.
Home Sales
The American Petroleum Institute in Washington is scheduled to release separate supply data today. The industry group collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA, the Energy Department’s statistical arm, for its weekly survey.
Previously-owned home sales fell 1.2 percent in June to an annualized rate 5.08 million, the National Association of Realtors reported yesterday. The median forecast of economists in a Bloomberg survey called for a 5.26 million pace.
WTI’s 14-day relative strength index slid below 70 for the first time in 12 days. The index is about 67.4 today after dropping below 70 yesterday, according to data compiled by Bloomberg. A reading above that level typically means gains have been excessive and may no longer be sustainable.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net Grant Smith in London at gsmith52@bloomberg.net
To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net
