London: Brent oil’s premium to US crude fell to its lowest in over eight months on Tuesday as increased supply of shale oil has decreased the US need for imports from Africa and the North Sea.
The premium of Brent, the predominant global oil price benchmark based on North Sea crudes, to US light crude was at $12.79 at 1017 GMT, down from as high as $23.45 in February.
“The erosion (of the premium) is because US shale production is decreasing imports of light sweet crude grades,” said Seth Kleinman, head of energy research at Citigroup.
US oil prices rose, while Brent fell slightly, although it remained within its range of the past two weeks, as traders saw little direction for the market and the effect of the Cyprus bailout faded.
Kleinman said that the spread could reach as low as $10 per barrel but was unlikely to fall much further because of difficulties in getting US supplies to the East Coast and the Gulf of Mexico.
Brent crude futures slipped 8 cents to $108.08 a barrel by 0932 GMT, in the middle of its recent $107 to $109 range. US crude gained 40 cents to $95.21.
“People are starting to turn away from their focus on Cyprus, and I think it will fade away as an issue quite quickly,” said Filip Petersson, an analyst at SEB in Stockholm.
“I expect there to be a search for a new driver, and until we get one, we will continue to trade sideways.”
After reaching an 11th-hour deal with the European Union, the European Central Bank and the International Monetary Fund to shut down the country’s second-largest bank in return for 10 billion euros ($13 billion) in rescue funds, the president of Cyprus assured citizens the deal was in their best interests.
But banks will remain closed until Thursday and even then subject to capital controls to prevent a run on deposits.
Saudi comments
Oil prices were also limited by comments on Monday from Saudi Arabia’s oil minister, Ali Al Naimi, that a price of around $100 a barrel was reasonable for consumers and producers, highlighting the top crude exporter’s preferred range.
Brent in mid-February pushed above $119 a barrel to its highest level this year before pulling back on economic concerns and improving North Sea supply.
“From a fundamental perspective, a further narrowing will be tricky to achieve in the short term as certain volumes of light-sweet crudes require a (WTI-Brent) spread of around -$15 to be viable for rail transport in the long run,” JBC Energy analysts wrote in a note.
“However, as markets tend to overshoot, it is possible that the spread will attempt to test last year’s highs, which were around — $11.”
US commercial crude oil stockpiles are forecast to have increased by 1.1 million barrels last week on an expected rise in imports, ahead of weekly industry data later in the day, a preliminary Reuters survey of analysts showed on Monday.
