Tuesday, February 12, 2013

WTI OIl Rises as Euro Gains on ECB Comment

West Texas Intermediate oil advanced for the first time in four days as the euro strengthened against the dollar.


The U.S. crude’s discount to Brent narrowed for the first time in nine days. WTI rose 1.4 percent after Jens Weidmann, a European Central Bank council member, said the euro isn’t seriously overvalued and warned governments against trying to weaken it.

Brent, the European benchmark, pared a decline of as much as 1.1 percent. Brent dropped after prices failed to break above technical resistance at $120 a barrel last week. The Brent-WTI gap narrowed from the widest level in two months.

“That talk by Weidmann reversed the momentum in oil trading,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.

“The $120 level is a major focus for Brent. The Brent-WTI spread got too far ahead itself last week.”

WTI crude for March delivery increased $1.31 to $97.03 a barrel on the New York Mercantile Exchange, the highest settlement since Feb. 1. Futures have increased 5.7 percent this year. Earlier today, it dipped below $95 for the first time since Jan. 23.

The volume of all contracts traded was 61 percent above the 100-day average as of 3:03 p.m. New York time. Brent for March settlement slid 77 cents, or 0.6 percent, to $118.13 a barrel on the ICE Futures Europe exchange.

The number of futures exchanged was 14 percent above the 100-day average. Brent’s premium to WTI narrowed as much as $2.14 to $21.04. The spread settled at $23.18 on Feb. 8, the widest level since Nov. 26.

Spread ‘Unraveling’

“You are seeing the unraveling of the spread,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “It’s really blown out over the past few weeks. People are buying back WTI.”

The euro advanced as much as 0.5 percent against the dollar after falling 0.3 percent earlier. A stronger euro and weaker dollar boost oil’s appeal as an investment alternative. The single currency touched $1.3711 on Feb. 1, the strongest level since November 2011.

“Latest indicators don’t signal a serious overvaluation of the euro despite its recent appreciation,” Weidmann, who heads Germany’s Bundesbank, said in a speech in Freiburg, Germany, today.

“An exchange-rate policy to specifically weaken the euro would lead to higher inflation in the end.” French President Francois Hollande last week urged government leaders to steer the value of the euro lower to boost growth.

His call was rebuffed by German Chancellor Angela Merkel’s government and European Central Bank President Mario Draghi, who on Feb. 7 suggested the ECB could lower interest rates if the stronger euro were to damp inflation too much.

Brent Drops

Brent fell after advancing to $119.17 in intraday trading Feb. 8, the most since May. Futures have risen for four straight weeks, the longest weekly streak since July. “Brent hit a wall at $120,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago.

“That’s a key psychological resistance level and a major one that everybody is watching.” The Brent-WTI spread had widened since Enterprise Product Partners LP said Jan. 31 that capacity will be limited until late 2013 on its Seaway pipeline to the Gulf Coast from Cushing, Oklahoma, the delivery point for the New York contract.

“The Brent market just got a little bit too ahead of itself as the Brent-WTI spread did also,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors.

Goldman Forecast

Jeffrey Currie, Goldman Sachs Group Inc.’s New York-based head of commodities research, forecast last week that the spread will shrink by about two-thirds by the second quarter to $7.50 as new pipeline capacity relieves a build-up of crude at Cushing.

Brent will drop to $110 a barrel over the next three to six months and WTI will be $102.50 in three months, the bank said.

Rising global demand, coupled with disruptions in Canadian oil supply growth, a reduction in Saudi Arabian production and constraints on Iranian exports, are limiting world supplies, according to Goldman Sachs.

Electronic trading volume on the Nymex was 727,464 contracts as of 3:04 p.m. It totaled 692,999 contracts on Feb. 8, 33 percent above the three-month average. Open interest was 1.62 million, the highest level since Sept. 14.

bloomberg.com

No comments:

Post a Comment