CFD’s: Oil price: Big WTI-Brent spreads poised to disappear?

West Texas Intermediate (WTI) light sweet crude has today reached its highest point since 27 December, at $100.61 a barrel, supported by data from the US American Petroleum Institute (API) showing that distillate inventories fell last week.

API yesterday reported that inventories at the oil hub in Cushing, Oklahoma shrank 2.49 million barrels.

“This is a very large decline, the largest I can remember,” says Strategic Energy and Economic Research president Michael Lynch. He observes that “the completion of pipelines is ending the bottleneck at Cushing”, which “suggests that the days of a big WTI-Brent spread are coming to an end”.

WTI has been trading at a discount to Brent in recent years due to rising US oil production and limited transportation for excess volumes to the Gulf Coast.

Currently the spread is at $8.27 a barrel.

The decline at Cushing “is clearly a positive for oil prices,” says CMC Markets chief strategist Michael McCarthy.

API also reported distillate stockpiles down by 1.45 million barrels last week.

And ahead of the Energy Information Administration’s (EIA) report due out today, a Bloomberg News survey projects a distillate inventories drop of 2.13 million barrels.

API yesterday reported that total US crude supplies rose 2.13 million barrels last week. The EIA is expected to announce an increase of 2.6 million, according to Bloomberg.

Gasoline inventories were 479,000 barrels last week, the API said, but analysts expect the EIA’s report to show a 100,000 barrel drop.

Continuing severe winter weather will cap a rise in US oil production as low temperatures hinder drilling and the completion of new wells, according to the EIA. The US may pump 120,000 barrels a day less than forecast this year and 100,000 less in 2015, the EIA said in its monthly Short-Term Energy Outlook yesterday.

The agency also revised down its crude oil price predictions, citing increased supplies from countries outside of the Organization of Petroleum Exporting Countries, primarily the US and Canada. WTI may reach $93.22 a barrel, down 11 cents from the EIA’s previous prediction, while Brent may trade 74 cents below prior estimates at $104.68.

Brent crude today approached $109 a barrel after the news that Chinese oil imports hit a record high last month, lifting optimism for growing oil demand in the world’s second largest economy.

China’s crude oil imports y/y grew 11.9 percent last month to a record 28.16 million tonnes, or 6.63 million barrels per day, customs data showed today.

Also positive for economic conditions in the People’s Republic was that exports rose 10.6 percent in the January year, while imports climbed 10 percent.