Tags: Oil | Low | Taper | Concern

Oil Falls to Five-Month Low on Taper Concern

Monday, 18 November 2013 05:32 PM

The price of the benchmark U.S. crude oil, West Texas Intermediate, fell to a five-month low Monday and the discount to Brent widened after comments by Federal Reserve Bank of New York President William C. Dudley added to speculation that the central bank will reduce stimulus.

Futures dropped 0.9 percent. The New York Fed chief pointed to payrolls growth as a positive sign in the text of remarks given in Flushing, New York, Monday. The policy-setting Federal Open Market Committee is buying $85 billion of bonds every month to spur growth and has said it plans to slow the purchases when the economy improves. WTI’s discount to Brent ended the day at the widest level in almost eight months.

“We dropped about a dollar after Dudley said he was upbeat about the economy,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “The good news about the economy will strengthen calls for a tapering of stimulus, which will strengthen the dollar and hurt commodity markets.”

WTI for December delivery decreased 81 cents to $93.03 a barrel on the New York Mercantile Exchange, the lowest settlement since May 31. The volume of all futures traded was 19 percent below the 100-day average at 2:59 p.m.

Brent crude for January settlement declined 3 cents to end the session at $108.47 a barrel on the London-based ICE Futures Europe exchange. Volume was 31 percent lower than the 100-day average. The European benchmark crude’s $14.79 premium to January WTI was the widest spread at settlement since March 21.

Tapering Estimates

The FOMC won’t taper its purchases until its March 18-19 meeting, according to the median estimate of 32 economists surveyed by Bloomberg News Nov. 8.

WTI climbed in early trading on China’s pledge to expand economic freedoms, which spurred optimism that the country is headed toward more sustainable growth. China passed the U.S. to become the world’s biggest crude importer in September, according to the Energy Information Administration’s October Short Term-Energy Outlook.

“WTI is spiraling downward and will soon be testing Thursday’s lows,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “It’s not a broad-based risk-off day, which is interesting. Equities are holding their own.”

The Dow Jones Industrial Average surpassed 16,000 for the first time and European shares rose. The Standard & Poor’s 500 Index exceeded 1,800 for the first time, reaching 1,802.33. The S&P’s GSCI Index of 24 raw materials slid as much as 0.7 percent to 612.49.

Iran Talks

Citigroup Inc. rescinded projections for higher prices amid progress toward an agreement over Iran’s atomic activities. Talks between Iran and the five permanent members of the United Nations Security Council plus Germany will resume Nov. 20 in Geneva. The U.S. and its allies say the government in Tehran is covertly seeking atomic-weapons capability, while Iran says its efforts are for peaceful purposes.

Iran’s oil output has decreased 16 percent since the U.S. and the European Union tightened sanctions in July 2012 to curb its nuclear program.

Brent’s premium to WTI widened to $15.86 on Nov. 14 after a round of talks between Iran and world powers ended without agreement and as unrest in Libya disrupted exports. The European benchmark grade is more sensitive to potential changes in Middle East and North African output than WTI because Europe depends more on barrels from the regions.

Brent Premium

“The Brent premium would be a lot lower if not for the disruptions in Libya and sanctions on Iran,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “If there’s an agreement with Iran announced at this week’s negotiations, you will see the Brent- WTI spread come in a lot more.”

The Joint Organizations Data Initiative showed Saudi Arabia exported more crude in September than in any month since November 2005. The largest oil producer in the Organization of Petroleum Exporting Countries, pumped 10.12 million barrels a day of crude and shipped 7.84 million a day in September, statistics posted on the JODI website yesterday show. JODI is supervised by the Riyadh-based International Energy Forum and compiles data provided by member governments.

Hedge funds became the least bullish on WTI in five months as U.S. inventories expanded. Money managers reduced net-long positions on WTI by 4.3 percent in the week ended Nov. 12, data from the U.S. Commodity Futures Trading Commission showed. Long positions, or bets that prices will gain, slid for the 10th time in 11 weeks and short positions advanced to a six-month high.

Implied volatility for at-the-money WTI options expiring in January was 17.9 percent, little changed from Nov. 15, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 430,742 contracts as of 2:54 p.m. It totaled 435,190 contracts Nov. 15, 25 percent below the three-month average. Open interest was 1.66 million contracts, the least since March 22.

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The price of the benchmark U.S. crude oil, West Texas Intermediate, fell to a five-month low Monday and the discount to Brent widened after comments by Federal Reserve Bank of New York President William C. Dudley added to speculation that the central bank will reduce stimulus.
Monday, 18 November 2013 05:32 PM
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