U.S. Crude Gains Take Nymex Above Brent

Crude-oil futures were trading up in London Monday, with the U.S. benchmark light, sweet crude trading above Brent.

At 0957 GMT, ICE Brent crude for September delivery was up 35 cents, or 0.3%, at $108.42 a barrel. Nymex crude for August delivery was up 55 cents, or 0.5%, at $108.60 a barrel.

“These are happy days for WTI futures volumes and traders of the arb,” wrote analysts at PVM Oil Associates. “Having all but hit the targets except for a positive arb close it is now time for caution to wait and see whether the momentum has legs beyond the targets.” The arbitrage — also known as the Brent-WTI spread — settled at -20 cents on Friday.

Such momentum is unlikely because high transportation costs will continue to limit the upside for WTI, PVM said.

“The impressive strengthening of the WTI/Brent spread from -$2.38 to – $0.20 during the week basis September looks like a classic case of shorts throwing in the towel,” they also noted, suggesting that money managers were giving up on bets that the price would fall.

Data are due later today on the number of long and short positions that speculators took last week in Brent futures. But with so much going on in the WTI market, Commerzbank CBK.XE -0.02% predicted that “money managers are likely to be showing less interest in Brent at present.”

Commerzbank also noted that front-month for Brent is September, while West Texas Intermediate is still being traded for August delivery.

“When the WTI August contract expires after close of trading this evening, the two front month futures contracts can be properly compared once again,” Commerzbank analysts wrote in a note to clients. “It may then be the case that the WTI price does actually exceed the Brent price. The currently high interest shown by financial investors in WTI would suggest this.”

However, WTI for September has traded higher that the North Sea grade on Monday.

For Brent, global supply risks continue to put upward pressure on the price, according to several analysts.

Morgan Stanley MS -0.36% noted that loadings continue to remain at a five-year low through August, though they note that the calculation excludes Russia, which hasn’t released loading data.

Further tensions in oil-producing states could lead to higher benchmark prices, they said. “South Sudan is shutting in production again (from as high as 200,000 barrels a day) over new disagreements with Sudan. New protests at the port of Zueitina in Eastern Libya have once again cut off a material amount of Libyan exports, and Iraq continues to struggle in its efforts to restart the Kirkuk-Ceyhan pipeline.”

Recently ICE gasoil for August was up $2.75, or 0.3%, at $928.50 a metric ton. Nymex gasoline for August was down 27 points, or 0.1%, at 3.1207 cents a gallon.

WSJ