Crude Oil & Brent Oil Diverge As The Spread Narrows

Crude oil and Brent oil diverged in the morning session with WTI gaining 11 cents to trade at 60.56. Brent oil moved into the red giving up 6 cents to 63.79. The spread has narrowed $3.26 well below expectations. Fundamentals in the US supported a climb in the in crude oil prices after the American Petroleum Institute released its weekly report on Tuesday evening after markets closed.  The American Petroleum Institute reported U.S. gasoline and crude oil inventories both fell 2.9 million barrels last week, Reuters said.

More closely watched figures come Wednesday from the U.S. Energy Information Administration which said last week that crude inventories fell for the sixth consecutive week to 470.6 million, its highest level at this time of the year in at least 80 years.

“Fundamentals are at an inflection point and will improve from here with high refinery runs this summer and sequentially declining U.S. crude production. As crude stocks erode, prices will gradually strengthen,” said U.S.-based Pira Energy.

The EIA’s report on Wednesday could show that crude stockpiles for the week ending on June 12 fell by 1.8 million barrels. Last week’s report showed US oil output rose to 9.61 million barrels a day, the highest level on record. Petroleum companies have been able to keep output high despite lower oil prices by scaling back riskier drilling and focusing on the most efficient prospects.

U.S. Energy Information Administration (EIA) data published this month shows that global petroleum oversupply has more than doubled to a record 2.6 million barrels per day (bpd) since the end of the second quarter of last year.

One of the reasons for the divergence in prices is the incoming storm off the coast of Texas. Traders were also watching Tropical Storm Bill, which was expected to make landfall over the refinery-rich Texas coast. The storm could force refiners to curtail output, hitting demand for crude oil but raising the premium on petrol and other refined products, according to a note from Commerzbank. Another significant factor was the rise in OPEC production. Oil production from the Organization of the Petroleum Exporting Countries climbed to its highest monthly level since October 2012, according to a Platts survey of OPEC and oil industry officials and analysts released Monday. OPEC production in May rose by 180,000 barrels per day from a month earlier, to 31.11 million barrels per day. That’s above OPEC’s production ceiling of 30 million barrels a day. Output from Saudi Arabia climbed 150,000 barrels a day to 10.25 million barrels a day.

Despite this, some analysts say they expect prices to rise going into the second half of the year as demand is strong and stocks are seen falling.

Brent crude is approaching a key stage in its recovery from this year’s lows and technical analysis over the June-July period will give an early indication of whether prices rally toward $80 a barrel, or lose steam and fall to the $50-$60 a barrel range, analysts at BMI Research, a unit of Fitch Ratings, said.