Benchmark WTI crude sees biggest fall versus UK Brent

By Alexander Kwiatkowski  |   2008-7-5  |     NEWSPAPER EDITION

NEW York's benchmark crude fell yesterday to the biggest discount in almost seven months relative to London's Brent oil as declining fuel demand cuts United States consumption and North Sea field maintenance crimps supply in Europe.

The West Texas Intermediate front-month crude oil futures on the New York Mercantile Exchange traded at a discount of as much as US$1.05 below the comparable Brent contract on the London-based ICE Futures Europe exchange yesterday. That's the biggest discount since December 14.

"Because of low gasoline demand in the US, no one is interested in increasing crude inventories," said Ehsan Ul-Haq, head of Vienna-based JBC Energy Research GmbH. "Europe on the whole is not bad. Diesel demand is still relatively strong."

A widening spread between benchmark prices in the US and Europe will make it more expensive for US buyers to ship oil from the North Sea and West Africa to the American market. European and African crude is priced in relation to Brent, making it less attractive as an alternative to crude priced from WTI.

In the last 10 years, Brent averaged about US$1.48 a barrel less than WTI, according to data compiled by Bloomberg News.

"The economic data coming out of the US is not supportive," said Ul-Haq. "Gasoline demand growth forecasts for the US this year are negative."

The fewest Americans in three years will travel over the July 4th weekend as record gasoline prices and a slowing economy force consumers to curtail spending, according to AAA, the largest US motoring group. US gasoline demand, which typically rises at this time of year, fell a 10th time in the week to June 27, according to data from MasterCard Inc.

US gasoline inventories rose 2.1 million barrels to 210.9 million last week, and supplies of distillate fuel, including heating oil and diesel, increased 1.3 million barrels to 120.7 million barrels, the Energy Department said in its report yesterday.

Planned shutdowns at North Sea fields are also boosting Brent's premium over WTI. Nexen Inc's 200,000-barrels-a-day Buzzard field, the biggest single field which supplies the benchmark Forties blend, shut earlier this week.