Oil in New York slipped on a surprise gain in inventories, with American crude near its weakest level in more than three years versus benchmarks elsewhere.
West Texas Intermediate oil was down 0.4 percent after falling 0.6 percent over the past two sessions. That’s in contrast to Brent crude in London, which rose 0.7 percent over Tuesday and Wednesday to close at the highest premium over WTI since April 2015. The divergence is being exacerbated as rising inventories and record output in the U.S. weigh on American futures, while risks to supply from Iran to Venezuela buoy the global benchmark in the U.K.
A lack of pipelines that can transport crude pumped from the inland shale fields to refineries in the U.S. Gulf Coast is leading to rising stockpiles as American production tops 10 million barrels a day. Meanwhile, speculation is swirling over whether OPEC and its allies will ease output curbs aimed at shrinking a global glut, and pump more to fill any potential supply gaps stemming from renewed U.S. sanctions on Iran and economic turmoil in Venezuela.
“I think the U.S. shale bottleneck is the driving factor on that premium and also the inventory increase is just surprising everybody,” Stephen Innes, head of trading at Oanda Corp., said by phone from Singapore. “Once geopolitical risks break off, Brent will come down to reality and that’s when the WTI and Brent spread will tighten.”
West Texas Intermediate for July delivery traded 0.4 percent lower at $71.59 a barrel on the New York Mercantile Exchange, down 25 cents, at 12:49 p.m. in Singapore. Total volume traded was about 47 percent below the 100-day average. The contract on Wednesday dropped 36 cents to $71.84.
Brent futures for July settlement were at $79.46 a barrel, down 34 cents, on the London-based ICE Futures Europe exchange. The contract on Wednesday climbed 23 cents to $79.80. The global benchmark was $7.87 a barrel above WTI for the same month, after closing at a $7.96 premium in the previous session.
Yuan-denominated futures for September delivery were up 0.2 percent to trade at 485.5 yuan a barrel by the mid-day break on the Shanghai International Energy Exchange. The contract declined 0.1 percent to 484.6 yuan on Wednesday.
U.S. inventories expanded by 5.78 million barrels to about 438 million barrels last week, data from the Energy Information Administration showed, versus a 2 million-barrel decrease predicted in a Bloomberg survey.
Prices of oil from the Permian Basin in the U.S. may fetch a discount of at least $20 a barrel to Brent over most of 2019, according to Raymond James Equity Research. That’s because production growth from the region is likely to “massively” outpace local demand and there isn’t enough pipeline capacity to transport the crude elsewhere, analysts including Justin Jenkins said in a note.
Meanwhile, the U.S. and Venezuela expelled each other’s top diplomats after America imposed sanctions in the wake of a disputed presidential election in the economically fragile Latin American nation. Investors are also watching how the U.S.’s renewed sanctions on the Iranian oil industry and exports affect the market.
“It’s certainly a wait-and-see approach for Iran and Venezuela,” Daniel Hynes, a senior strategist at the Australia & New Zealand Banking Group Ltd., said by phone from Sydney. “Prices are probably going to plateau for a moment until there’s clarity on Iranian oil in particular.”
Other oil-market news:
OPEC and allied oil producers including Russia are discussing new ways of measuring global crude stockpiles, signaling a possible decision that could affect production cuts they’re making to ease a global glut. Earlier this month, ConocoPhillips obtained court orders freezing assets owned by Venezuelan oil company Petroleos de Venezuela SA in the Caribbean. Things still look dire as PDVSA hasn’t been able to load a single supertanker of fuel oil to send to China, and vessels were diverted away from Caribbean ports and are backed up around Venezuelan terminals.
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