Bloomberg News

WTI Oil Rises, Narrows Discount to Brent

March 22, 2013

West Texas Intermediate crude rose, narrowing its discount versus Brent to the lowest level since July, on signs that Cyprus is moving closer to a deal to stave off financial collapse and as the U.S. economy improved.

WTI capped a third weekly gain and the euro increased against the dollar as a Cypriot lawmaker said talks are going in the right direction to avert the island’s financial collapse. U.S. jobless claims dropped to the least in five years last week, based on the four-week moving average, the Labor Department said yesterday. Brent lagged WTI’s rally as German business confidence unexpectedly fell.

“Oil is rising because the euro is stronger and there is optimism that Europe and Cyprus will reach a last-minute deal,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “When you are worried about the European economy, you are not going to see Brent get stronger. The U.S. economy is a lot better.”

WTI for May delivery gained $1.26, or 1.4 percent, to settle at $93.71 a barrel on the New York Mercantile Exchange. Prices are up 0.3 percent this week. The volume of all futures traded was 13 percent below the 100-day average for the time of day at 4:04 p.m.

Brent for May settlement increased 19 cents to end the session at $107.66 a barrel on the London-based ICE Futures Europe exchange. It closed at $107.45 March 19, the lowest level since Dec. 10. The volume of all futures traded was 8.9 percent below the 100-day average for the time of day. The grade has lost 3.1 percent this year, while WTI has gained 2.1 percent.

The European benchmark’s premium to WTI shrank to $13.95, the narrowest level in eight months.

Cyprus Bailout

Cyprus is trying to raise 5.8 billion euros ($7.5 billion) needed to trigger emergency loans from the European Central Bank and avoid a financial crisis.

“We believe that in the next few hours we could be able, with a lot of difficulties, to reach a framework that will be within the policies of the EU, European Central Bank and IMF,” Averof Neofytou, deputy president of Cyprus’s ruling Disy party, told reporters in Nicosia, referring to the troika of creditors. “We are trying hard. I believe we may have a result today.”

The ECB said it will withdraw funding from Cyprus’s lenders from next week if the government and the euro area fail to agree on a deal.

The Cypriot parliament rejected a measure to tax bank deposits earlier this week. German lawmakers from Chancellor Angela Merkel’s coalition criticized the handling of Cyprus bailout proposals today.

WTI Buying

WTI is attracting some buying “because of the slightly better economic picture here in the States,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Investors are looking for a reason to send WTI higher. It’s going to stay stationary overall because of the risk of a default in Cyprus.”

The European Union accounted for 16 percent of the world’s oil consumption in 2011, BP Plc (BP/)’s Statistical Review of World Energy shows.

The euro gained as much as 0.9 percent to $1.301. A stronger euro and weaker dollar increase dollar-denominated oil’s appeal as an investment alternative.

“We do not think that risk appetite has necessarily deteriorated,” said Harry Tchilinguirian, head of commodity- markets strategy at BNP Paribas SA in London, who forecasts that Brent will average $114 a barrel this quarter. “Once the Cyprus issue is resolved, and ultimately it will have to be resolved,” crude is likely to strengthen, he said.

Brent oil will rebound toward $111 a barrel “once the current macroeconomic headlines fade,” Miswin Mahesh, an analyst at Barclays Plc in London, said in an e-mailed report today.

German Confidence

German business confidence fell from a 10-month high in March as Cyprus inflamed the euro region’s debt crisis. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, declined to 106.7 from 107.4 in February. That’s the first drop in five months.

Euro-area services and manufacturing output contracted more than economists estimated in March, data from London-based Markit Economics showed yesterday.

Implied volatility for at-the-money WTI crude options expiring in May was at 17.6 percent at 4 p.m., a decrease from 18.3 percent yesterday. The figures have slipped from 24.7 percent on Feb. 21.

Electronic trading volume on the Nymex was 402,572 contracts as of 4:04 p.m. It totaled 410,594 contracts yesterday, 25 percent below the three-month average. Open interest was 1.65 million contracts.

To contact the reporters 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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