(Corrects rise in Cushing crude stocks in paragraph eight to
* Brent/WTI spread widens to more than $11 in heavy selling
* Coming up: EIA oil inventory data at 10:30 a.m. EDT on
By Jeanine Prezioso
NEW YORK, Oct 22 U.S. oil prices sank below $98
to their lowest in nearly four months on Tuesday, while European
Brent held firm, as fears of a near-term U.S. crude surplus
pushed the spread between the two oil contracts to its widest
gap since April.
The onset of seasonal autumn U.S. refinery maintenance,
coupled with additional spurts of pipeline outages, have curbed
demand for crude, causing domestic stockpiles to swell and
fueling the abrupt unwinding of the Brent-WTI oil spread, which
has widened by some $3.50 a barrel in three days.
"It's a trade that's really attracting some interest and
people are hopping on the Brent bandwagon and selling WTI to
finance it," said Stephen Schork, editor of the Schork Report in
U.S. crude futures for November, which expired on
Tuesday, dropped $1.42 per barrel to settle at $97.80, with
selling exacerbated as the front-month contract dropped below
the 200-day moving average for the first time since June. The
December contract ended the day $1.38 lower at $98.30.
Brent for December settled 33 cents higher at
$109.97 after trading at a session high of $110.94.
The Brent/WTI spread CL-LCO1=R widened by $1.38 to end at
$11.67, the widest gap since April. The spread, which stood at
around $5 a barrel three weeks ago, could deter U.S. imports of
overseas crude and may bolster inland margins.
Recent data showing that crude stockpiles in Cushing,
Oklahoma, were rising again after a 14-week decline helped
trigger selling pressure in the U.S. contract.
That oil stocks at Cushing were on the rise was further
confirmed late on Tuesday when industry group American Petroleum
Institute (API) showed stocks at the U.S. oil storage hub rose
last week by 423,000 barrels, the second weekly increase, while
U.S. crude inventories rose by 3 million barrels.
The build in crude was fairly in line with a Reuters poll
calling for a 2.9 million barrel increase. The EIA will return
to its normal schedule this week after the U.S. government
shutdown, reporting on Wednesday at 10:30 a.m. (1430 GMT).
Earlier in the day, Brent crude drew some strength from the
belated release of U.S. jobs data showing the economy added a
disappointing 148,000 jobs last month, news that weakened the
dollar and fuelled expectations the U.S. Federal Reserve would
continue its cheap money policy.
REFINERY EBB AND FLOW
With U.S. refinery operations at a seasonal ebb due to
maintenance and domestic production rising steadily, U.S. crude
markets are under pressure at every turn.
U.S. output from major shale oil plays is expected to
increase by 60,000 barrels per day in November from October, the
U.S. Energy Information Administration said.
Still, most analysts expect the Brent/WTI slump to be
temporary. Once refiners emerge from maintenance in the coming
weeks they are likely to rev up crude runs to take advantage of
cheaper oil and export excess fuel.
"The way this will get closed is when refineries get back
online to export to Europe," said Bill O'Grady, chief market
strategist at Confluence Investment Management in St. Louis.
LIBYA SUPPORTS BRENT
Brent oil also faces tighter supply from output cuts in
Libya as the United States becomes more insulated from
geopolitical shocks as supplies from shale plays multiply,
Libya's oil production is around 600,000 barrels per day
(bpd) as the government works to end protests at fields and
ports that have cut shipments for months.
Tenuous relations between the United States and Saudi
Arabia, the most important oil producer in the Middle East, also
supported a geopolitical risk premium in Brent.
The Saudis are expected to make a "major shift" in dealings
with the United States in protest against Washington's perceived
inaction over the Syria war and its overtures to Iran.
(Editing by Jonathan Leff, Andrew Hay, Andre Grenon, Peter
Galloway and Nick Zieminski)