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WTI Crude Caps Fourth Weekly Rally

Friday, 19 Jul 2013 03:29 PM

 

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West Texas Intermediate crude capped a fourth weekly gain as the U.S. showed signs of economic recovery and on speculation that the monthly increase has been excessive. WTI exceeded Brent for the first time since 2010.

Prices rose 1 cent to a 16-month high as Moody’s Investors Service revised the U.S.’s Aaa credit-rating outlook to stable from negative. U.S. crude supplies tumbled 27.1 million barrels in three weeks ended July 12, the most in weekly statistics dating to 1982. WTI’s 14-day relative strength index stayed above 70 for an 11th day, a sign that prices may decline.

“Improved economic conditions here in the United States continue to boost the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We have a tightening supply outlook. The market is a little ahead of itself.”

WTI for August delivery, which expires on July 22, settled at $108.05 a barrel on the New York Mercantile Exchange, the highest level since March 19, 2012. The volume of all futures traded was 28 percent above the 100-day average for the time of day at 2:48 p.m. Prices increased 2 percent this week, extending July’s gain to 12 percent. The more-active September contract advanced 6 cents to $107.87.

Brent for September settlement slipped 63 cents, or 0.6 percent, to end the session at $108.07 a barrel on the ICE Futures Europe Exchange. Volume was 1.1 percent above the 100-day average. The contract fell to 3 cents below September WTI in intraday trading, the first discount since Aug. 17, 2010. Brent settled at a 20-cent premium to the U.S. benchmark.

U.S. Economy

Growth in the U.S. economy, “while moderate,” is proceeding even as the U.S. has enacted tax increases and spending reductions, Moody’s said yesterday in a statement. Moody’s assigned the negative outlook in August 2011, warning that it may downgrade the U.S. for the first time on concern fiscal discipline was eroding and the economy was weakening.

U.S. crude inventories dropped to 367 million barrels last week, the lowest level since Jan. 18, the Energy Information Administration reported July 17. Stockpiles at Cushing, Oklahoma, the biggest oil-storage hub, decreased 882,000 barrels to 46.1 million, according to the EIA, the Energy Department’s statistical arm.

The convergence between Brent, a pricing benchmark for more than half the world’s oil, and WTI shows how improved pipeline networks and the use of rail links have helped to unlock a supply glut at Cushing. WTI, the bellwether U.S. crude, had typically been the more expensive grade until mid-2010.

Relative Strength

WTI’s relative strength index was 74, data compiled by Bloomberg showed. The streak of 11 days over 70 is the longest since 2002. Some investors start selling contracts when the reading crosses that threshold, seen as a sign that speculative buying has driven prices unreasonably high.

“Oil prices are lofty,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Could it be the top and we are going to see a retreat? My answer is yes.”

Prices gained earlier on China’s plan to remove the floor on lending rates. China eliminated the rate limit to boost bank lending and economic growth.

The People’s Bank of China will also remove the cap on lending rates offered by rural cooperatives, the central bank said in a statement on its website today. The actions are effective tomorrow. Raising the deposit-rate ceiling would improve household incomes.

© Copyright 2014 Bloomberg News. All rights reserved.

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