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Oil spot price at fresh highs on US inventory run-down

Brent-WTI spread under $15

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iNVEZZ.com: Wednesday, December 4th:

Crude oil

Both West Texas Intermediate and Brent crude yesterday gained on the news from the American Petroleum Institute that domestic US oil inventories dropped by 12.4 million barrels equivalent last week, shattering a 10-week streak of increases that had added about 36 million barrels. Oil prices were also supported by strong economic reports from the United States and China, showing stable growth in manufacturing sectors. API also reported that US gasoline stockpiles fell by 119,000 barrels, while distillate holdings increased by 540,000 barrels.

Yesterday’s rise in the WTI price was also supported by news that TransCanada would start operating its key new pipeline on 3 January, helping to relieve a supply blockage at the main US oil storage hub. The launch will allow rising inventories at the Cushing, Oklahoma hub to move to the Gulf Coast, location of a number of major US refineries.

WTI has today reached its highest point since 30 October, at 97.50. Brent earlier in the day rose to test the psychological level of 113.00 but only made it to 112.98 – the highest point since 12 September. Currently the two benchmarks are trading at 97.15 and 112.02 respectively, with the spread between them at the moment being less than $15 a barrel.

In recent months WTI has fallen in value relative to Brent on account of infrastructure constraints and rising shale oil production, causing a supply surplus in Cushing. The spread between WTI and Brent last week reached $19, far from the low of $2.64 reached on 18 September.

Bloomberg today quotes Gordon Kwan, Hong Kong-based regional head of oil and gas research at Nomura Holdings, as observing that “further de-bottlenecking at Cushing with the Keystone pipeline extension to Port Arthur could boost WTI and narrow the wide discount” to Brent.

The US Energy Information Administration is tomorrow due to release the country’s official Crude Oil Inventories for last week, with expectations for a drop of half a million barrels.

Investors will be closely observing today’s meeting of the Organization of Petroleum Exporting Countries in Vienna for any clues on the cartel’s production levels going forward. To this point, OPEC is expected to keep unchanged its output target of 30 million barrels a day.

Natural gas

Yesterday natural gas hit its highest point since 5 June, at 4.013. Heating oil is today trading up at 3.0713 and natural gas is currently at 3.969, ahead of tomorrow’s EIA numbers for natural gas inventory.

Cold weather is continuing across much of the continental United States and forecasts for colder than normal temperatures are pushing residential demand higher than hitherto anticipated.

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