MW: Oil inches higher, heads for fourth weekly gain
WTI-Brent crude-price spread narrows to less than $1 a barrel
By Myra P. Saefong and Sara Sjolin, MarketWatch
SAN FRANCISCO (MarketWatch) — Oil prices inched higher on Friday, as some upbeat U.S. economic data this week helped to improve the outlook for energy demand and traders kept an eye on developments in Egypt for potential disruptions to the oil trade.
Oil for August delivery CLQ3 -0.04% tacked on 57 cents, or 0.5%, to trade at $108.61 a barrel on the New York Mercantile Exchange after adding 1.5% on Thursday. Prices, which have already scored gains over the last three weeks, traded about 2.5% higher for this week.
Likewise, September Brent crude UK:LCOU3 -0.41% added 14 cents, or 0.1%, to $108.84 a barrel on ICE Futures.
“Crude oil can be a very momentum-driven market, and this month shows us an example of that,” said Jason Rotman, president of Lido Isle Advisors in Newport Beach, Calif.
Nymex crude has made a “steady climb” this week, to touch a high of $109.32 in Friday trading, he said.
The $109.50 level “may be a short-term ceiling” for West Texas Intermediate oil, but prices could head above $110 by September, said Rotman. “The Middle East concern is still very prevalent and is likely supporting prices right now.”
Thousands of protestors rallied in Egypt on Friday for the reinstatement of ousted President Mohammed Morsi. The violence and political tensions in Egypt raised concerns this month about the potential disruptions to the oil trade in the Middle East and North Africa region.
Oil’s move Friday came as the U.S. dollar traded a bit lower, with the ICE dollar index DXY -0.21% around 82.599, down from late Thursday’s 82.783 level. A weaker U.S. currency can discourage buying of dollar-denominated oil by making it more expensive to holders of other currencies.
Thursday’s rally had come as jobless claims in the U.S. fell more than expected and the Federal Reserve Bank of Philadelphia’s manufacturing survey this month rose to the highest level since March 2011.
WTI-Brent spread below $1
Nymex-traded WTI crude’s gain of 1.5% on Thursday well outpaced a less than 0.1% advance in its London-traded Brent North Sea crude rival. That helped narrow the spread between the prices to less than $1 for the first time since early December 2010, according to FactSet data.
The Nymex-Brent spread has been shrinking recently — at the start of the month, Brent was at about a $5 premium to Nymex, while at this time in 2012, the Nymex-Brent spread was roughly $16, FactSet data show.
Citi Futures energy analyst Timothy Evans said falling U.S. crude-oil supplies had helped Nymex WTI catch up with Brent.
“WTI is the flavor of the month, having easily eclipsed the performance of Brent crude oil in this year’s version of the ongoing popularity contest between the two major global benchmarks,” he wrote late Thursday.
Evans said that with Nymex crude “in backwardation, the holding of inventories has become costly, and so we also think there’s a good chance that the decline [in U.S. crude stockpiles] will be steeper than usual.”
Backwardation refers to a situation in which the price of a commodity for future delivery is lower than the spot price.
WTI had also scored a gain on Wednesday following data that showed a much bigger-than-expected fall in weekly U.S. crude supplies.
Data also indicated that refiners in the U.S. last week had consumed more crude than at any time since August 2005, according to Lido Isle Advisors’ Rotman. The narrowing of the Brent/WTI spread indicates “a major correction in the WTI market regarding perceived supply,” he said.
Elsewhere in the energy complex, August gasoline RBQ3 +0.60% gained 4 cents, or 1.4%, to $3.15 a gallon, trading more than 1% higher for the week. “It looks as though the poor recent price performance may have been enough to convince some traders that gasoline represents a relative bargain,” wrote Citi Futures’ Evans.
At the retail level, a gallon of regular gasoline sold for $3.672 on Friday, up from $3.55 a week ago and well above the year-ago price of $3.437, according to AAA’s Daily Fuel Gauge Report.
In other trade, August heating oil HOQ3 -0.28% added half a cent, or 0.2%, to $3.11 a gallon, ready for a gain of about 2.5% on the week.
August natural gas NGQ13 -0.71% shed 4 cents, or 1.1%, to $3.77 per million British thermal units, but it was still poised for gain of more than 3% for the week.
Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong.
Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin. Michael Kitchen in Los Angeles contributed to this report.
