West Texas Intermediate oil advanced from the lowest level this year as equities climbed on company earnings, while the shutdown of a Brent pipeline system after a platform leak boosted the European benchmark.
WTI futures rose 0.8 percent as the Dow Jones Industrial Average (INDU) surged to a record amid the fastest profit growth since the 1990s. Brent gained 1.4 percent as a pipeline system was closed for a fourth day after an oil leak was discovered March 2 on the Cormorant Alpha platform. After the close of floor trading, the American Petroleum Institute reported that U.S. crude supplies rose more than 5 million barrels and the death of Venezuelan President Hugo Chavez was announced.
“The only surprise is that the rebound in WTI isn’t stronger, given how much we came off and the sharper move in other asset classes,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “At least with Brent there’s some physical tightness due to the shutdown in the North Sea.”
WTI oil for April delivery rose 70 cents to settle at $90.82 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 15 percent below the 100-day average as of 3:03 p.m. The contract dropped to $90.12 yesterday, the lowest settlement since Dec. 24.
Oil was little changed after the API reported inventories increased 5.6 million barrels last week to 379 million. The April contract rose 55 cents, or 0.6 percent, to $90.67 a barrel at 4:31 p.m. in electronic trading.
Chavez’s death isn’t likely to affect the market for long, said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. Vice President Nicolas Maduro announced Chavez’s death after the close of floor trading. U.S. crude oil imports from Venezuela totaled 549,000 barrels in the week ended Feb. 22, down 44 percent from a year earlier, EIA data showed.
“U.S. production is big enough to absorb whatever losses may come from Venezuela,” O’Grady said. “You may see some unrest, and it will probably have some adverse effects on oil production. For the most part it should be a short-term bullish factor.”
Brent crude for April settlement increased $1.52 to end the session at $111.61 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 24 percent above the 100-day average. The European benchmark grade was at a $20.79 premium to WTI, widening for a fourth day.
The Dow jumped for the fourth time in five days, rising as much as 1.1 percent to 14,286.37, exceeding the 14,164.53 record close it reached before the global financial crisis. It also eclipsed its previous intraday high of 14,198.10 from Oct. 11, 2007. The Standard & Poor’s 500 (SPX) Index increased as much as 1.2 percent.
“It will be hard for the crude market to fall apart given all the strength we’re seeing in the Dow,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “The crude market has been under siege recently, falling seven of the past nine days. The trend remains bearish, but it’s going to be hard to ignore the historic Dow move.”
The Standard & Poor’s GSCI Index of 24 commodities increased as much as 0.9 percent.
Service industries in the U.S. grew in February at the fastest pace in a year. The Institute for Supply Management’s non-manufacturing index increased to 56 last month from 55.2 in January, the Tempe, Arizona-based group said today. Economists projected the gauge would be little changed at 55, according to the Bloomberg survey median.
The service figures follow a report last week that showed the fastest pace of manufacturing since June 2011, indicating the economic expansion of the world’s biggest crude-consuming country may be broadening.
A series of safety checks must be completed before production can resume from the 27 North Sea oil fields that make up the Brent system, an official of the Abu Dhabi National Energy Co. (TAQA) PJSC, the operator, said today by phone from Aberdeen, Scotland. The official asked not to be identified because of company policy.
The system normally carries 90,000 barrels a day of crude and accounts for about 10 percent of the U.K.’s oil production. About 10,000 barrels a day were already offline after a similar incident at the same platform on Jan. 14.
Brent may also be higher because of production disruptions in Nigeria. So far this year, Royal Dutch Shell Plc (RDSA) and other oil companies have declared four force majeures, a legal clause that allows them to miss contracted deliveries due to circumstances beyond their control. Shell announced the latest today, on Bonny Light Crude exports, as the thefts threaten to outpace the worst year, 2009, at the height of an insurgency.
U.S. crude inventories probably rose 788,000 barrels last week, according to the median estimate of 12 analysts surveyed by Bloomberg before tomorrow’s EIA report. It would be the longest stretch of gains since May.
“When it looks more and more likely that the Dow is going to hit 15,000, oil looks relatively less appealing as a store of value,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “There are factors that weigh on oil prices, such as the continuing inventory builds in the U.S.”
Stockpiles of gasoline and distillate fuels, a category that includes heating oil and diesel, each fell 1 million barrels, the survey showed.
Electronic trading volume on the Nymex was 402,546 contracts as of 4:33 p.m. It totaled 451,853 contracts yesterday, 16 percent below the three-month average. Open interest was a record high 1.675 million contracts, up from the previous day’s record of 1.672 million.
Sourced from bloomberg.com March 5, 2013