Bloomberg News

Brent Premium Rises to One-Year High; WTI Crude Declines

October 16, 2012

Brent crude traded at the highest premium in a year to futures in New York amid concern that supplies from the North Sea and the Middle East will be disrupted and speculation U.S. stockpiles are increasing.

Brent in London climbed to as high as $24.28 a barrel more than West Texas Intermediate as WTI remained little changed near a three-day low. The European Union tightened sanctions on Iran’s energy exports, while Nexen Inc. (NXY) declined to give a specific date for resuming its Buzzard field in the North Sea after maintenance. Crude inventories in the U.S., the world’s biggest oil user, rose 1.5 million barrels last week, according to a Bloomberg News survey before a government report tomorrow.

“The Brent market has been inflated by declining North Sea production and hiccups in that production, like the recent problems with Buzzard,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London. “The price of WTI is also being distorted by the huge increase in U.S. domestic oil production.”

Crude for November delivery gained 12 cents to $91.97 a barrel in electronic trading on the New York Mercantile Exchange as of 1:31 p.m. London time. The contract yesterday closed at $91.85, the lowest settlement since Oct. 10. Prices are down 7.4 percent this year.

Brent for November settlement dropped 57 cents to $115.23 a barrel on the London-based ICE Futures Europe exchange after gaining $1.18 yesterday. The contract expires today. The more- active December future slipped 11 cents to $114.29.

Libyan Uprising

The European benchmark grade’s premium to WTI rose from $23.95 yesterday. The gap is the widest based on closing prices since Oct. 14, 2011, when it reached a record $27.88 as Libyan output collapsed after an uprising against Muammar Qadaffi.

Goldman Sachs Group Inc. predicted as early as April that the difference would shrink to $5 and reiterated that forecast in August. The spread may narrow as refiners return from maintenance on the U.S. Gulf Coast, Hussein Allidina, the New York-based head of commodities research at Morgan Stanley, said in a report yesterday.

EU foreign ministers in Luxembourg yesterday approved extra curbs on trade with Iran and on its finance, energy and transport industries following an oil embargo earlier this year. They also froze the assets of 34 Iranian entities to limit the Islamic republic’s ability to raise funds for its atomic program. The U.S. and EU say the program is aimed at producing weapons, while Iran says it’s for peaceful purposes.

Buzzard Restart

Nexen declined to specify the timing of the resumption of the oil flow from the Buzzard field when contacted by Bloomberg News yesterday. Reuters news agency reported that the restart has been delayed by as many as four days, citing a trade source who declined to be identified. Nexen said Oct. 11 that it was on track for production to resume in mid-October.

Fifteen out of 16 Forties cargoes for loading in October have been delayed, according to revised loading programs obtained by Bloomberg News.

Forties is the most abundant of the four North Sea crude grades that make up the Dated Brent benchmark and, as the cheapest of the four, typically sets the marker used to price more than half of the world’s oil.

“Brent prices were supported by further delays in the restart of Nexen’s Buzzard field after maintenance, which is the largest North Sea oil field,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. (ANZ) in Melbourne, said in a note. “Expect more volatility to come.”

Gasoline Stockpile

U.S. gasoline stockpiles probably climbed 250,000 barrels last week, according to the median estimate of eight analysts surveyed by Bloomberg before the Energy Department report. Distillate supplies, a category that includes heating oil and diesel, fell 1.25 million barrels, the survey shows.

The American Petroleum Institute will release separate inventory data today. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Oil in New York has technical support around $90 a barrel, according to data compiled by Bloomberg. Futures yesterday halted their decline near that price, where the 100-day moving average coincides with a Fibonacci retracement level on the weekly chart. Buy orders tend to be clustered close to technical-support levels.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net


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