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Crude Rises to Nine-Month High as U.S. Stockpiles Seen Falling

July 2, 2013

(Bloomberg) -- West Texas Intermediate crude rose to the highest level this year on speculation that U.S. stockpiles shrank for the first time in a month and as orders placed with U.S. factories rose in May.

Crude gained for the sixth time in seven days as inventories may have dropped last week to the lowest level since May 31, according a Bloomberg survey before government data tomorrow, signaling increased demand in the world’s largest oil- consuming country. Factory bookings rose 2.1 percent, the Commerce Department said. Brent’s premium over WTI narrowed to the lowest since January 2011.

"There is still some room for some bullish supply numbers," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "You really want to sell oil ahead of inventory data that may show some sharp drops? There is a lot of price chasing going on."

WTI for August delivery gained 99 cents, or 1 percent, to $98.98 a barrel at 10:33 a.m. on the New York Mercantile Exchange after reaching $99.17, the highest intraday level since Sept. 17. The volume of all futures traded was 139 percent above the 100-day average.

Brent for August settlement rose 65 cents, or 0.6 percent, to $103.65 a barrel on the London-based ICE Futures Europe exchange. Volume was 1.6 percent above the 100-day average. The European benchmark grade’s premium to WTI narrowed to as little as $4.56 a barrel.

 

Crude Supply

 

U.S. crude stockpiles fell 2.25 million barrels, or 0.6 percent, to 391.9 million in the week ended June 28, the Bloomberg survey showed. Refineries probably increased operating rates to the highest level in more than 10 months as motor fuel production climbed before the U.S. Independence Day holiday on July 4, the survey showed.

Total petroleum consumption in the U.S., the world’s biggest oil consuming country, increased 3 percent in the week ended June 21 to 19 million barrels a day, the EIA, the Energy Department’s statistical arm, reported last week.

Motor-fuel demand is highest from the last weekend in May to the Labor Day weekend in early September, the prime vacation season in the U.S.

"It’s the peak demand season," said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. "The path of least resistance is higher."

 

Factory Orders

 

Growth in May factory orders is faster than the 2 percent increase forecast by economists surveyed by Bloomberg. Factory orders excluding the volatile transportation component climbed 0.6 percent after a 0.2 percent increase the prior month, the Commerce report showed.

The U.S. accounted for 21 percent of global oil demand last year, according to the International Energy Agency’s monthly oil market report published on June 12.

"We are looking at a decline in inventories," said Gordy Elliott, a risk-management specialist at Intl FC Stone LLC in St. Louis Park, Minnesota. "Brent is having more challenges to find a reason to rally. You’ll probably see WTI trading even at a premium to Brent."

Goldman Sachs Group Inc. has forecast since February 2012 that the Brent-WTI spread would shrink, even while the differential moved in the opposite direction. The bank reiterated in May this year that it would narrow to $5 in the third quarter as new pipeline capacity is added to move oil out of the storage hub at Cushing, Oklahoma. Cushing is the delivery point for WTI contracts traded in New York.

"You have more pipeline capacity that you had before and that helped draw those prices together," said Evans.

A supply hiccup at the U.K.’s biggest oil field, Buzzard, is now resolved, according to a person with knowledge of the matter who asked not to be identified because the information is confidential. Buzzard is the largest contributor to the Forties crude grade, which typically sets the price of the Dated Brent benchmark.

 

--With assistance from Rupert Rowling in London and Mark Shenk in New York. Editors: Richard Stubbe, Charlotte Porter

 

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

 

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

 

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