WTI Near Three-Day Low as Goldman Sees Wider Discount to Brent


West Texas Intermediate crude fluctuated after dropping the most in more than a week as weaker-than-forecast U.S. economic data raised concern that growth will stall in the world’s biggest consumer of oil.

Futures were little changed in New York after declined yesterday from the highest price in 16 months as U.S. home sales fell. U.S. crude stockpiles probably shrank by 2.5 million barrels to a six-month low last week, according to a Bloomberg News survey before government data tomorrow. WTI’s 14-day relative strength index slid below 70 for the first time in 12 days, while Goldman Sachs Group Inc. forecast its discount to Brent will widen amid a supply glut on the Gulf Coast.

“The economic recovery is now potty,” said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin in Sydney. “There’s no reason for prices to be at these levels. Seasonally, we have these draws” in inventories, he said.

WTI for September delivery was at $106.65 a barrel, down 29 cents in electronic trading on the New York Mercantile Exchange at 3:04 p.m. in Singapore. The volume of all futures traded was 42 percent below the 100-day average. The August contract expired yesterday after losing 1.1 percent to $106.91.

Brent for September settlement rose 2 cents to $108.17 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade was at a premium of $1.51 to WTI futures, from yesterday’s close of $1.21.

Crude Supplies

Brent fell below WTI futures in intraday trading on July 19 for the first time since August 2010. The gap between the two benchmark prices has decreased as improved pipeline networks and the use of rail links eased the North American supply glut created by rising production of crude from shale formations. WTI traded at a discount of as much as $23.44 a barrel in February.

WTI is likely to average from $8 to $9 a barrel below Brent in 2014 as the U.S. Gulf Coast becomes “increasingly saturated” in light, sweet crude because of shale-oil output growth, Goldman Sachs said in an e-mailed report today.

“The market is still positioned for further WTI-Brent upside, however, given the potential upside for WTI-Brent, the risk-reward of these positions now looks a lot less appealing,” said Stefan Wieler, a Goldman analyst in New York. “A sudden repositioning as the market loses confidence in the current WTI strength could therefore put substantial downside pressure on WTI-Brent spreads over the short run.”

U.S. crude inventories probably slipped to 364.5 million barrels last week, the lowest level since January, according to the Bloomberg survey before tomorrow’s report from the Energy Information Administration. Stockpiles may have decreased for a fourth week, the longest run of declines since August.

Fuel Supplies

Gasoline stockpiles probably climbed by 1.5 million barrels last week, according to the median estimate of nine analysts surveyed. Distillate inventories, including heating oil and diesel, are expected to have gained by 1.5 million barrels.

The American Petroleum Institute in Washington is scheduled to release separate supply data today. The industry group collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA, the Energy Department’s statistical arm, for its weekly survey.

Previously owned home sales fell 1.2 percent in June to a 5.08 million annualized rate, the National Association of Realtors reported yesterday. The median forecast of economists in a Bloomberg survey called for a 5.26 million pace.

WTI’s 14-day relative strength index is about 67.4 today after dropping below 70 yesterday, according to data compiled by Bloomberg. A reading above that level typically means gains have been excessive and may no longer be sustainable.

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PS.  Parabolic moves usually means a correction will happen soon enough.  Questions are how big a dip, how long will it last and if it can come back and trend higher.  Oil prices seldom get above 100 for a long period of time and will soon or later have demand destruction, back down to say 90s or less.  Now is there a trade on it on short side like the leveraged ETFs, maybe.  Is there any more upside on oil equities, maybe since the stocks still probably trade at oil 90s or less, how will they react on downside if oil prices retreat to 90s or less?