U.S. oil traded near the narrowest discount to global marker Brent in 11 months amid expectations that a 40- year-old ban on American crude exports will be lifted, offering an outlet for the nation’s swollen supplies.
West Texas Intermediate futures for January traded for 60 cents a barrel less than the equivalent Brent contract on Wednesday, the smallest gap since Jan. 15. U.S. Congressional leaders agreed on a plan that would avert a government shutdown and lift restrictions on shipping domestic crude overseas, House Speaker Paul Ryan told fellow Republicans. Any change in U.S. policy will have “zero” impact on the market because the country remains an importer, OPEC Secretary-General Abdalla El-Badri said Tuesday.
Oil is trading near levels last seen during the global financial crisis after the Organization of Petroleum Exporting Countries effectively abandoned output limits to defend market share. While the U.S. repealing restrictions on crude exports could allow unfettered access to supplies, prices aren’t competitive enough to attract foreign buyers, according to consultant Energy Aspects Ltd. The nation’s stockpiles are still more than 120 million barrels above the five-year seasonal average.
“The two oil benchmarks will have to do a bit of tug-of-war to find the new equilibrium point,” said Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, Switzerland. “At the very least, it would mean that the wide WTI discount to Brent becomes out of date.”
U.S. Supplies
WTI for January delivery dropped as much as 78 cents to $36.57 a barrel on the New York Mercantile Exchange and was at $37.05 at 10:51 a.m. in London. The contract climbed $1.04 to $37.35 on Tuesday. The volume of all futures traded was about 85 percent above the 100-day average. Prices are down 30 percent this year, putting the benchmark on track for a second annual loss.
Brent for February settlement slid as much as 2.9 percent to $37.60 a barrel on the London-based ICE Futures Europe exchange. The January contract, which expires Wednesday, fell $1.11 to $37.34. February WTI traded at a premium of 47 cents to Brent for the same month.
The U.S. restricted crude exports during the energy shortages of the 1970s. Producers including Continental Resources Inc., Pioneer Natural Resources Co. and ConocoPhillips have been pressing for an end to rules that block overseas shipments of most raw, unprocessed oil while not curbing sales of refined products such as gasoline and diesel.
WTI-Brent Spread
Limits on U.S. crude exports would be lifted immediately, according to a bill released early Wednesday by the House Appropriations Committee. The change would allow the president to impose restrictions on exports for national-security reasons and in case of a shortage. The House plans to vote Thursday, Representative John Kline, a Minnesota Republican, said after meeting with fellow party members.
The attractiveness of U.S. exports to foreign buyers depends on the price difference between domestic and overseas crude, in particular the spread between WTI and Brent. The U.S. benchmark grade’s discount to Brent, which was as wide as $27.88 in 2011, narrowed to an average of $2.74 this quarter.
Crude Glut
While lifting the ban would limit the size of the discount, WTI would have to be at least $4 a barrel below Brent for exports to work, depending on the cost of shipping, Energy Aspects analysts wrote in a note on Friday.
“If you look at where the WTI-Brent spread is today, it’s already close to transportation cost,” Virendra Chauhan of Energy Aspects said by phone from Singapore.
U.S. crude inventories gained by 2.3 million barrels in the week ended Dec. 11, the American Petroleum Institute data was said to have reported Tuesday. Stockpiles probably decreased by 1.5 million, according to the median estimate in a Bloomberg survey of 11 analysts before Energy Information Administration data Wednesday.
“If U.S. supplies expanded, it can be a strong bearish factor because seasonally it’s the time for stockpiles to shrink,” said Hong Sung Ki, a commodities analyst at Samsung Futures Inc. in Seoul.
Oil prices also retreated on signs Iran may be moving closer to boosting crude sales as United Nations nuclear monitors ended their 12-year probe of the country’s research into atomic-weapon technologies.
The International Atomic Energy Agency’s 35-member board of governors in Vienna closed the investigation Tuesday without a vote following four hours of debate. It reported Dec. 2 that Iranian scientists had experimented with nuclear-bomb technologies without ever taking the final steps needed to produce a weapon.
There’s “absolutely no chance” Iran will delay its plan to increase crude exports, Amir Hossein Zamaninia, the deputy oil minister for international and commerce affairs, said Dec. 13.