West Texas Intermediate crude dropped as the Bank of Japan unexpectedly left a lending program unchanged, bolstering concern that central banks are growing reluctant to add more stimulus. WTI’s discount to Brent crude shrank to the narrowest level in more than two years.
Prices fell 0.4 percent, moving lower with commodities and equities, after BOJ Governor Haruhiko Kuroda and his fellow board members refrained from expanding their tools to address bond-market volatility. They stuck with an April plan to double the monetary base as they seek to rekindle inflation and stoke growth. Brent decreased more than WTI after production at the North Sea’s Buzzard oil field resumed this week.
“Everything is falling across the board,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “Oil is moving with the broad financial market. The market is watching Japan really closely as it’s one of the world’s major economies.”
WTI for July delivery fell 39 cents to settle at $95.38 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 2 percent below the 100-day average for the time of day at 3:44 p.m.
Prices dropped after the American Petroleum Institute reported that U.S. crude inventories increased 8.97 million barrels last week to 396.3 million, the highest level since July 1981. Oil futures slid 77 cents, or 0.8 percent, to $95 a barrel at 4:35 p.m. Prices were $95.25 before the API report was released at 4:30 p.m.
Brent for July settlement dropped 99 cents, or 1 percent, to $102.96 a barrel on the London-based ICE Futures Europe exchange. Volume was 8.7 percent above the 100-day average for the time of day. Brent was $7.58 more expensive than WTI, the narrowest spread since Jan. 20, 2011, on a settlement basis.
The policy makers kept the BOJ’s one-year fixed-rate loan facility unchanged after two days of talks. Twenty of 23 economists in a Bloomberg survey forecast that the central bank would approve loans of two years or more. Officials were divided before the meeting about whether to extend the loans to two years, people familiar with the discussions said last week. The BOJ has tapped the one-year loan facility seven times.
“We will discuss when needed” any extension to the one-year limit, Kuroda said at a press conference after the meeting. “I haven’t seen the need for it so far.”
Japan is the world’s third-largest economy, after the U.S. and China, and ranks behind the other two nations as the third-largest energy-consuming country.
“We are not going to see additional stimulus from Japan and the markets got nervous and started to sell off,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
The Standard & Poor’s 500 Index (SPX) dropped 1 percent. The Stoxx Europe 600 Index slid 1.2 percent. Japan’s Topix index fell 1 percent after rising as much as 0.7 percent before the BOJ statement. The S&P GSCI (SPGSCI) gauge of 24 commodities retreated 0.7 percent, led by metals and energy.
The U.S. raised its 2013 forecast for WTI to $93.25 a barrel from a May projection of $93.17, according to the monthly Short-Term Energy Outlook from the Energy Information Administration. Prices will be $91.96 next year, down from the previous month’s estimate of $92.25.
The Buzzard field in the North Sea returned to approximately full pumping rates of about 208,000 barrels a day over the weekend after a halt June 6 because of an equipment failure, according to two people with knowledge of the matter who asked not to be identified.
Buzzard is the largest contributor to the Forties crude grade, which sets the value of Dated Brent, the benchmark used to price more than half of the world’s crude.
“The Brent-WTI spread has narrowed a lot,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “Buzzard is moving things around.”
U.S. oil inventories probably dropped 1.5 million barrels last week to 389.9 million, according to analysts surveyed by Bloomberg before a report tomorrow from the EIA, the Energy Department’s statistical arm. Stockpiles reached 397.6 million barrels on May 24, the most in 82 years.
Gasoline consumption averaged 8.73 million barrels a day in the four weeks ended May 31, down 0.8 percent from a year earlier.
“Oil demand is relatively subdued,” said Rich Ilczyszyn, chief market strategist and founder of commodities trading firm Iitrader.com in Chicago. “There is no reason for oil to be this high.”
Oil advanced to $96.03 a barrel on June 7, the highest close since May 21. It rose 4.4 percent last week, the biggest increase since April.
The Organization of Petroleum Exporting Countries raised crude output in May to the highest level in six months while keeping its demand forecast for 2013 unchanged because of risks to the global economy.
OPEC increased production by 106,000 barrels a day to 30.57 million a day last month, led by gains in Saudi Arabia, the group said today in its monthly market report, citing secondary sources.
Implied volatility for at-the-money WTI options expiring in August was 20.2 percent, compared with 20.1 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 516,102 contracts as of 4:37 p.m. It totaled 593,163 contracts yesterday, 1.4 percent lower than three-month average. Open interest was a record 1.81 million contracts.
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