Oil traded near a four-month high in New York, narrowing its discount to Brent crude to the least since September, after the expansion of a pipeline that may reduce a glut in the U.S. Midwest.
West Texas Intermediate climbed as much as 0.8 percent after a fifth weekly gain, the longest run of advances since August. The 500 mile (805 kilometer) Seaway line running from Cushing, Oklahoma, to Freeport, Texas, resumed service after shutting Jan. 2 to boost capacity to 400,000 barrels a day from 150,000 barrels, Enterprise Products Partners LP (EPD:US) and Enbridge Inc. (ENB) said Jan. 11. Goldman Sachs Group Inc. (GS:US) said WTI’s discount to Brent will shrink to $6 a barrel in the second quarter, from $17 today.
“Cushing stocks should start to decline with the start of the extended Seaway pipeline,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, who predicts the spread between WTI and Brent may narrow to $15 a barrel this quarter.
Crude for February delivery rose as much as 73 cents to $94.29 a barrel and was at $93.99 in electronic trading on the New York Mercantile Exchange at 12:40 p.m. London time. Prices traded as high as $94.70 on Jan. 10, the most since Sept. 19.
Brent for February settlement was at $111.18 a barrel, up 54 cents, on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $17.22 to WTI. It settled at $17.08 on Jan. 11, the narrowest gap based on closing prices since Sept. 19.
WTI dropped 7.1 percent in 2012 as the U.S. shale boom deepened the glut at Cushing, America’s largest storage hub and the delivery point for WTI. That left it at an average discount of $17.47 a barrel to Brent last year, compared with a premium of about 7 cents in the five years through 2010. Brent, the benchmark grade for more than half the world’s crude, climbed 3.5 percent last year.
Goldman Sachs expects a “substantial narrowing of the WTI- Brent spread” as a result of a “more balanced market” in the U.S., compared with the surplus at the end of 2012, Jeff Currie, head of commodities research in New York, said in a report.
Crude stockpiles at Cushing rose to a record 50.1 million barrels in the week ended Jan. 4, Energy Department data show.
Global crude supply is set to increase this year amid growth from both OPEC and non-OPEC producers, according to Morgan Stanley.
The production capacity of the Organization of Petroleum Exporting Countries will rise by 713,000 barrels a day in 2013, led by an addition of 265,000 barrels of supply from Iraq, Hussein Allidina, head of commodities research at the bank, said in a report today. Projects in Angola and Nigeria will add another 187,000 barrels a day, according to the bank.
Hedge funds boosted bullish bets on oil to the highest level in more than three months, according to a report from the Commodity Futures Trading Commission.
Money managers raised net-long positions, or wagers that the U.S. benchmark crude will gain, by 12 percent in the week ended Jan. 8, according to the CFTC’s Jan. 11 Commitments of Traders report. Net-long positions held by money managers, including hedge funds, commodity pools and commodity-trading advisers, jumped by 18,173 futures and options combined to 168,066.
In London, hedge funds and other money managers raised bullish positions on Brent crude by 10,925 contracts to the highest in more than nine months, according to ICE data.
Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 150,036 lots in the week ended Jan. 8, the highest level since March 27, the London-based exchange said today in its weekly Commitment of Traders report. That’s the fourth consecutive weekly advance.
WTI’s advance may stall as a technical indicator continues to show futures have risen too quickly for further gains to be sustainable. The 14-day relative strength index remains close to 70, a reading that signals a market is overbought and may decline. Crude fell on Jan. 11 after the RSI climbed above 70 the previous day for the first time since August.
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