Monday, February 6, 2012

Crude Falls 1% as Oil Contracts Diverge.


NEW YORK—The world's two most important crude contracts headed in different directions, with the price premium for European crude over U.S. crude growing to the largest level in three months due to rising domestic supplies and concerns of shortages overseas.

The premium for Europe's Brent crude over U.S.-traded West Texas Intermediate oil futures rose to $19.02, the widest gap since November. As recently as Jan. 3, the gap was under $10.

On Monday, light, sweet crude for March delivery settled 93 cents, or 1%, lower at $96.91 a barrel on the Nymex. Brent crude on the ICE futures exchange settled $1.35 higher at $115.93 a barrel.

A glut of oil is re-emerging in the U.S. at the same time supply issues are cropping up in Europe, said Andy Lipow, president of Lipow Oil Associates, an energy consulting firm. Because of pipeline bottlenecks in the U.S. Midwest, U.S. and Canadian oil aren't able to reach areas that are paying more for overseas crude.

"I call it a tale of two cities," said Mr. Lipow.

A confluence of factors has led to the widening spread. In part, it is due to rising supplies in the U.S. Stockpiles of crude oil last week rose to the highest level since mid-December. But the supply concerns overseas have been more important. An impending embargo of Iranian oil from the European Union has led to worries that Europe's oil prices will increase as supplies become tighter. South Sudan also has decided to shut down its oil production amid a furious dispute with Sudan over oil-transit fees—further tightening the European market.

And at the same time, demand in Asia for Europe's oil is also rising.

According to shipping fixtures examined by The Wall Street Journal, at least 12 million barrels of North Sea Forties crude were booked to travel to Asia between December and February, a trading move virtually unheard of before late last year.

Forties crude is the largest component of Dated Brent, the physical oil benchmark that typically trades in line with Brent futures.

"In this way, Dated Brent is acting as a true global benchmark," JBC Energy said in a note published last week.

The situation has motivated traders to return to one of last year's most profitable trades: betting against New York Mercantile Exchange-traded WTI, while betting on a rise in the price of Brent crude traded on the IntercontinentalExchange, or ICE.

"People are foreseeing a move back into the $20s, so there's been some buying of Brent, selling of WTI," said Tony Rosado, a broker at GA Global Markets.

The divide between Brent and Nymex-traded WTI narrowed sharply at the end of 2011 after a decision to reverse the Seaway pipeline from Cushing, Okla., to the U.S. Gulf Coast promised to relieve a supply glut in the middle of the country.

The pipeline is due to begin shipping crude June 1, but more oil is flowing toward Cushing in anticipation of the reversal.

Front-month March reformulated gasoline blendstock, or RBOB, settled 1.35 cents, or 0.5%, higher at $2.9279 a gallon, the highest price since August. March heating oil settled 5.63 cents higher at $3.1707 a gallon.

Write to Jerry A. DiColo at

No comments:

Post a Comment