Bloomberg News

Oil Near Six-Week Low Before Jobs Report; Brent Premium Widens

February 03, 2012

Feb. 3 (Bloomberg) -- Oil traded near a six-week low before a report forecast to show the U.S. added fewer jobs last month than in December. Brent crude’s premium to the New York price is set for the largest weekly gain in a month.

Futures were little changed in New York after dropping a fifth day yesterday, the longest losing streak since August. The U.S. added 140,000 jobs last month after gaining 200,000 in December, according to a Bloomberg News survey of economists before a Labor Department report today. London-traded Brent’s premium to West Texas Intermediate crude, the U.S. benchmark, widened 32 percent this week to the most since Nov. 12.

“Investors will be watching the release of the jobs data, which is a key leading indicator for economic activity and therefore energy demand,” said Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Pty in Sydney. “Concerns about demand has led to some pretty heavy selling in West Texas. Brent has held its ground, so we have seen that spread widen.”

Crude for March delivery was at $96.57 a barrel, up 21 cents, in electronic trading on the New York Mercantile Exchange at 4:02 p.m. Singapore time. The contract fell 1.3 percent to $96.36 yesterday, the lowest since Dec. 19. Prices are down 3.1 percent this week, the most since the week ended Dec. 16.

Brent oil for March settlement climbed as much as 0.4 percent to $112.54 a barrel on the ICE Futures Europe exchange. It gained 0.5 percent yesterday and is up 0.7 percent this week. The European benchmark contract’s premium to WTI was at $15.75, the widest in 12 weeks.

Cushing Supplies

West Texas futures fell this week on signs of surging stockpiles at the Cushing, Oklahoma, delivery point for the New York contract as output increased in Canada and North Dakota. Inventories at Cushing climbed by 1.48 million barrels to 30.1 million in the week ended Jan. 27, the highest level since Dec. 16, according to U.S. Energy Department released Feb. 1.

The supply increase has pushed the March contract to a discount of $2.61 a barrel to December futures. This market situation, known as a contango, means later deliveries are more expensive than prompt supplies. As recently as Jan. 3, the nearer-term contract was at a premium of $1.85.

As stockpiles at Cushing increased 6.5 percent in the past two weeks, WTI’s discount to Brent crude, the European benchmark, widened to $15.71 a barrel Feb. 2 from $9.90 on Jan. 18 on the ICE Futures Europe exchange in London.

Demand Driven

“The big increase in inventories in the U.S. has led to weakness in West Texas,” said CMC’s McCarthy. “Normally oil is a supply-side equation, but the trading overnight was more demand-side driven.”

U.S. gasoline consumption decreased to 7.97 million barrels a day, the lowest since September 2001, according to the Energy Department data. Stockpiles of the fuel increased 3.02 million barrels last week, the report showed.

The Organization of Petroleum Exporting Countries will increase shipments this month on rising winter demand in the northern hemisphere, according to tanker-tracker Oil Movements.

OPEC will ship 23.52 million barrels a day in the four weeks to Feb. 18, 1.1 percent more than the 23.26 million barrels in the period to Jan. 21, the Halifax, England-based researcher said yesterday in an e-mailed report. The figures exclude Angola and Ecuador.

Saudi Arabia may raise the price of its lowest-quality crude to the most in almost two years relative to its top oil grade, according to a Bloomberg survey of 10 buyers in Japan, Singapore, China, South Korea and India.

Arab Heavy, the kingdom’s cheapest oil, will be sold to Asian customers in March for $2.02 a barrel less than higher- quality Arab Light, the smallest difference since April 2010, the survey showed. The company will announce official selling prices on Feb. 5.

SK Innovation Co., South Korea’s largest refiner, is seeking alternative supplies to feed its refineries because it anticipates government sanctions against trading with Iran may be extended to crude oil imports. The Seoul-based company may increase crude purchases on the spot market or shift to other suppliers, Jo Eun Hee, the head of SK’s energy planning unit, told investors in a conference call from Seoul today.

--With assistance from Ann Koh in Singapore. Editors: Mike Anderson, Christian Schmollinger.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Mike Anderson at manderson34@bloomberg.net


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