The US benchmark crude oil managed a premium over brent crude on Monday, bucking a nearly three-year trend.
Although it’s too early to gauge if it is going to be a trend in oil trading, analysts said heightened expectations of a sustained recovery in the US economy when China is slowing is a key driver of the West Texas Intermediate (WTI) crude prices.
The WTI crude oil rose 47 cents to $108.52 in intraday trade, while brent crude oil gained 14 cents to $108.21 a barrel. This comes as higher pipeline capacity has strained the oil glut of at the WTI delivery point of Cushing, Oklahoma, to the US Gulf Coast, where refinery demand has been high. Stocks at Cushing have dropped to 46 million barrels from 52 million in January.
The WTI September/October spread with the brent was at around $1.80, with the August contract expiring on Monday.
Before Friday, the WTI had last traded above the brent in October 2010. Historically, brent crude was traded at a discount to the WTI as the world’s benchmark as the US oil has less sulphur content making it a better oil variety.
However, in 2010 the two varieties switched positions following a period of fluctuations in prices, paving the way for the brent to command premium to the WTI.
However, with the WTI hitting a 16-month high on Friday, equaling Brent’s price for the first time since August 2010, the dynamics of oil trading are set to change if indeed it becomes a trend again.
The WTI rally has been triggered by soaring summer season demand in the Northern Hemisphere, shrinking US oil inventories and a weaker dollar that makes the imports of the commodity more attractive for users of other currencies.
Despite some analysts’ warnings that the current prices may not sustain, crude prices are largely seen to inch up as investors await US manufacturing data for May? to be published later in the day, followed by data from the Chicago Fed and June data from the US housing sector ? for more clarity on demand in the world’s largest consumer.
The US dollar index? a gauge of the greenback’s strength against a basket of six other currencies? dropped 0.17% on Monday, responding to the Fed sustaining its current level of monetary stimulus. This made the commodity more attractive for imports by other nations.
Among other commodities, gold hit a one-month high as fears of an early rollback of the US stimulus measure receded, while copper gained after China’s move to ease controls on bank lending rate.
Spot gold gained 1.7% at $1,317.74 an ounce, while US August gold futures rose $24.90 an ounce at $1,317.80.
Purchases gathered momentum after prices beat the psycological $1,300-an-ounce barrier after repeated resistence at that level in recent days, driving the precious metal to $1,322.50 earlier in the session, its highest since June 20.
Similarly, three-month copper on the London Metal Exchange rose 1.1% to $6,990.25 a tonne on signs that China’s latest move to ease lending rates may help prop up the economy and drive up the industrial material demand. The latest data showing a 11% jump in China’s copper imports in June also helped the rally. The contract dropped about 0.5% last week after two straight weeks of gains.