Bloomberg News

Gasoline Slides to Six-Week Low as Brent Weakens Versus WTI

April 17, 2012

Gasoline slid to a six-week low as Brent oil weakened versus the U.S. benchmark crude and on speculation that gasoline peaked before the April-to-September U.S. driving season.

Futures declined as the London benchmark’s premium to West Texas Intermediate oil sank to the lowest level since February on reduced concern that tension over Iran’s nuclear program will disrupt supplies. Gasoline has lost 5.3 percent since reaching a 2012 high of $3.4166 on March 26.

“You’re seeing unwinding of the Brent-WTI spread, unwinding of crack spreads,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “Because gasoline was so long, it exacerbates this move and some traders think gasoline has peaked.”

Gasoline for May delivery fell 3.3 cents, or 1 percent, to settle at $3.234 a gallon on the New York Mercantile Exchange, the lowest settlement since March 6. Gasoline’s premium to WTI, or crack spread, narrowed $2.66 to $31.63 a barrel, the smallest difference since March 6.

Gasoline’s premium to heating oil fell 4.3 cents to 10.74 cents, the smallest premium since March 19.

“Brent will continue to lose slowly to WTI,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. “It was long Brent, long gasoline, short WTI. It was a bit of a bubble.”

Brent’s Premium Narrows

The premium of Brent, traded on the London-based ICE Futures Europe exchange, to Nymex-traded WTI, based on June contracts, narrowed to $14.14 a barrel, the lowest since Feb. 1.

Brent, the benchmark for oil used in European refineries that export gasoline to the East Coast, affects the price of crude processed on the Gulf Coast, home to refineries with 49 percent of total U.S. capacity, according to Energy Department data.

Gasoline and Brent have risen this year as tension with Iran escalated and the U.S. and European Union imposed sanctions on Iran’s oil exports.

“Brent is coming off as the Iran situation is being kicked down the road,” said Phil Flynn, vice president of research at PFGBest in Chicago.

International talks with Iran on April 14 over its nuclear program yielded an agreement to reconvene in May, easing concern that crude supplies will be disrupted. Negotiations are scheduled to reconvene in Baghdad on May 23 between Iran and the five permanent members of the United Nations Security Council plus Germany.

Hedge Fund Bets

Hedge funds trimmed bullish bets on gasoline by the most in more than three months in the week ended April 10. Funds and other large speculators reduced wagers on rising prices, or net long positions, by 7.1 percent, the biggest drop since Dec. 20, according to the Commodity Futures Trading Commission’s Commitment of Traders report on April 13.

Enbridge Inc. and Enterprise Products Partners LP said they will begin oil shipments about May 17 on the reversed Seaway pipeline, from Cushing, Oklahoma, to the U.S. Gulf Coast, according to a filing with regulators yesterday.

“The whole world of oil has been linked to Brent and not to WTI,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “Now, the combination of Iran tensions unwinding and the fact the Seaway pipeline is going to start in May has gotten everybody jumping ship on the Brent-WTI spread. Anything linked to Brent is basically up for sale.”

Regular gasoline at the pump, averaged nationwide, fell 0.3 cent to $3.904 a gallon yesterday, according to AAA, the nation’s biggest motoring club. Prices, which are up 19 percent this year, have fallen 3.2 cents since reaching a 2012 high of $3.936 on April 4.

Heating oil for May delivery gained 1 cent to $3.1266 a gallon, its fourth gain in five sessions.

To contact the reporters on this story: Barbara J Powell in Dallas at bpowell4@bloomberg.net

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


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