Crude Oil – Brent Oil Spread Narrows Signalling Market Imbalance

Crude oil gave back some of yesterday’s gains to trade at 90.20 down by 14 cents while Brent oil tumbled 33 cents to reach 92.67. The spread narrowed to below $2.50 signaling a market correction. Yesterday crude oil prices closed higher, staging a small rebound from last week’s steep losses as a slightly weakening US dollar offered some support. Oil prices have been on a downward slide for months. Last week WTI fell to $88.18, a level last recorded in April 2013, while Brent hit $91.48, its lowest level since June 2012. On Monday, both contracts had traded lower earlier in the day amid a backdrop of weak demand growth and flush oil supplies, but rallied to a positive finish.

The US dollar, which has been rallying strongly for several weeks, hitting its highest level on Friday in two years against the euro and six years against the yen, eased slightly on Monday. A weaker US dollar tends to make US dollar-priced crude oil and other commodities more attractive to buyers using stronger currencies, lifting demand.

Prices capped the biggest weekly decline in two months after money managers boosted net-long positions in West Texas Intermediate by 4.1 per cent in the seven days ended Sept. 30. Long positions climbed 2.7 per cent, US Commodity Futures Trading Commission data show.

US crude oil prices fell below $90 on Oct. 2 after Saudi Arabia, the world’s largest oil exporter, cut its prices to Asia. US production is the highest since 1986, while OPEC output expanded to the most in a year. The International Energy Agency last month reduced its projections for demand growth this year and in 2015, citing a weakening economic outlook.

Saudi Arabia told OPEC that it cut production in August by the most in 20 months. It will maintain the lower output until the end of the year as demand for winter fuel increases, a person familiar with its policy said Sept. 26. OPEC may reduce its daily quota by 500,000 barrels to 29.5 million in 2015, Secretary-General Abdalla El-Badri said in Vienna on Sept. 16. Ministers are next scheduled to meet on Nov. 27 in Vienna.

Global oil consumption typically rises during the last three months of the year as the Northern Hemisphere winter increases use of heating fuels. The fourth quarter had the strongest demand in each of the past five years, IEA data show.

prices are the lowest in four years following a drop in crude oil futures, the nation’s largest motorists group said. The average price at the pump dropped to $3.33 a gallon on Thursday, down 10 percent from this year’s high, and the lowest for the month of September since 2010, according to the AAA. With crude oil futures hitting their lowest levels since 2012 on Thursday, the price at the pump is expected to fall even further. AAA is forecasting the national average for gasoline will drop below $3 in the coming months, rivaling 2009 prices.

Natural gas reversed their climb to ease by 33 points and are trading at 3.885 after touching $4 last week. Record production from the unconventional drilling boom keeps capping the market at around $4, where trading closed on Friday. Some traders have briefly pushed gas beyond that point several times since August, in anticipation of peak winter demand season when extreme weather can lead to price spikes. Without any sign of cold weather, strong production has kept them from sustaining those prices. Several forecasts are showing more temperate conditions than they did last week, suggesting lower than expected demand on the way both for gas heating and for gas-fired power to run air conditioners, analysts said. A cold front that was supposed to spread over large parts of the Midwest starting this weekend is giving way to normal October temperatures.