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Oil price gets closer to global benchmark as glut shifts

Monday, September 21, 2015 - 17:29
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US oil prices narrowed their discount to international benchmark Brent as a supply glut in North America abated even as it grew elsewhere.

[LONDON] US oil prices narrowed their discount to international benchmark Brent as a supply glut in North America abated even as it grew elsewhere.

West Texas Intermediate futures for November delivery climbed 1.4 per cent, trading for $2.40 a barrel less than the corresponding contract for Brent. The spread between the two grades averaged $2.25 last week, the least since January. US prices are being supported by faltering crude production and supply disruptions in Canada, while Brent is under pressure because of rising shipments from the North Sea and West Africa, according to Barclays Plc.

"Several themes have been driving the reduction in the spread, including a shifting North American landscape, light oil abundance in the Atlantic Basin and concerns about the overall health of the global economy," analysts at Barclays including Miswin Mahesh in London and Michael Cohen in New York, said in a report Monday.

US crude production has declined for six straight weeks as the slump in prices over the past year takes its toll on the nation's shale oil industry. The Organization of Petroleum Exporting Countries has sustained output amid a global glut, producing above the group's target of 30 million barrels a day for a 15th month in August, according to data compiled by Bloomberg.

West Texas Intermediate for October delivery, which expires Tuesday, was at $45.32 a barrel on the New York Mercantile Exchange, up 64 cents, at 9:30 am London time. The contract lost $2.22 to $44.68 on Friday. The volume of all futures traded was about 15 per cent below the 100-day average. The more active November contract rose 63 cents to $45.65.

Brent for November settlement rose 54 cents to $48.01 a barrel on the London-based ICE Futures Europe exchange. Front- month prices slid 1.4 per cent last week.

Brent has weakened relative to WTI as shipments from Nigeria and Angola - which are priced using the European benchmark - reach their highest since 2008, Barclays said. Exports from the North Sea, where the Brent field is located, are forecast to climb next month.

The contraction in the WTI-Brent spread is "unlikely to last" as Canadian output recovers after technical problems and inventories at the main US crude-storage hub accumulate once nearby refiners begin seasonal maintenance, Adam Longson, an analyst at Morgan Stanley in New York, said in a report.

Oil is down about 50 per cent from a year ago in New York amid a global oversupply that Goldman Sachs Group Inc. predicts may keep prices low for the next 15 years.

Hedge funds cut bets on falling WTI prices last week, leaving them the most bullish in two months, data from the Commodity Futures Trading Commission show. Money managers' net- long position in WTI rose by 14,821 contracts to 147,678 futures and options in the week ended Sept 15.

BLOOMBERG