West Texas Intermediate crude rose to the highest level in more than two weeks as the Standard & Poor’s 500 Index (SPX) approached a record on optimism that central banks will maintain economic stimulus to bolster growth.
Futures climbed 1.6 percent as the majority of economists surveyed by Bloomberg predicted European Central Bank policy makers will cut interest rates this week, while the Federal Reserve Open Market Committee will consider renewing its commitment to bond-buying at a two-day meeting starting tomorrow. The S&P 500 traded above its record closing level and the euro climbed. WTI’s discount to Brent oil futures traded in London narrowed to the least since January 2012.
“The markets are up on expectations that the FOMC will continue with its stimulus program this week and the ECB will finally cut rates and might announce further stimulus,” said John Kilduff, a partner at Again Capital LLC, a New York energy hedge fund. “The WTI-Brent has come in a great deal and may narrow even more in the days ahead.”
WTI oil for June delivery climbed $1.50 to $94.50 a barrel on the New York Mercantile Exchange, the highest settlement since April 10. Trading was 13 percent below the 100-day average for the time of day.
Brent crude for June settlement rose 65 cents, or 0.6 percent, to $103.81 a barrel on the London-based ICE Futures Europe exchange. The contract touched $103.94 in intraday trading, a two-week high. Volume was 0.5 percent below the 100- day average.
The European benchmark grade traded at a premium of $9.31 to WTI, down from $10.16 on April 26. The spread narrowed to $9.18 during trading, the least since Jan. 19, 2012.
Morgan Stanley is “skeptical” that the spread between WTI and Brent can shrink on a sustained basis, the bank said in a report e-mailed today. Any significant narrowing would be a selling opportunity, it said.
Crude rose with equities on increasing home sales and consumer spending in the U.S., the world’s leading oil user. The National Association of Realtors said its index of pending existing-home sales rose 1.5 percent in March. Household purchases climbed 0.2 percent in March after a 0.7 percent gain the prior month, a Commerce Department report showed.
The Standard & Poor’s 500 Index rose 0.9 percent and the Dow Jones Industrial Average 0.8 percent.
“Equities and the crude market are pretty much joined at the hip now,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “Stocks and the dollar are the main movers of oil today, not anything specific to energy markets.”
The euro strengthened as much as 0.7 percent against the dollar on the Fed speculation and after Italian Prime Minister Enrico Letta was sworn in yesterday, ending two months of political deadlock. A stronger common currency bolsters the appeal of raw materials denominated in the dollar as an investment.
ECB policy makers will cut the benchmark rate to 0.5 percent from 0.75 percent when they meet May 2, according to the majority of economists in a Bloomberg survey.
“There’s not a fundamental hook for today’s move higher,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Equities are higher, the Fed is expected to continue its asset-purchasing program and the ECB may cut rates. These are the factors supporting oil today, not supply and demand.”
Gasoline fell as refineries returned to service. Exxon Mobil Corp. (XOM:US)’s Chalmette plant in Louisiana completed maintenance on its fluid catalytic cracker. Chevron Corp. (CVX:US) said last week it expects to bring the Richmond site in California to full rates over the coming days.
Gasoline for May delivery dropped 0.74 cent to $2.8275 a gallon in New York. The contract expires tomorrow. June futures slipped 0.53 cent to $2.822.
“Crude is showing strength because of the prospect that the Fed and ECB will take action to improve the economy,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Gasoline is showing weakness because demand remains anemic and we’ve got refineries restarting units, which will boost supply.”
Net-long positions in WTI crude held by money managers, including hedge funds, commodity pools and commodity-trading advisers, dropped in the week ended April 23, according to the Commodity Futures Trading Commission’s April 26 Commitments of Traders report. They fell by 624 futures and options combined to 182,408, the CFTC report showed.
Hedge funds and other money managers cut bullish bets on Brent to their lowest level in four months, according to data from ICE Futures Europe. Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 99,127 lots in the week ended April 23, the Commitment of Traders report showed. The drop of 8,973 contracts leaves so- called net longs at their lowest level since Dec. 11.
Implied volatility for at-the-money WTI options expiring in June was 21.8 percent, compared with 20.4 percent on April 26.
Electronic trading volume on the Nymex was 398,893 contracts as of 2:43 p.m. It totaled 466,803 contracts April 26, 19 percent below the three-month average. Open interest was 1.74 million contracts.
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