WTI extends gains, hedge funds boost bullish bets

WTI gained for a fourth day and continued to narrow its discount to Brent amid a third straight drop in U.S. stockpiles and signs of consistent economic recovery in the worlds top user. Both benchmarks were supported as G20 pledged to put growth before austerity, fueling hope of a recovery in commodities consumption.

On the New York Mercantile Exchange, WTI crude for September delivery traded at $108.39 at 8:36 GMT, up 0.48% on the day. Prices held in range between days high and low of $108.45 and $107.91 respectively. Light, sweet crude gained for a fourth straight day after settling 1.94% higher last week, a fourth consecutive weekly gain. The American benchmark rose more than 14% during the past four weeks.

Meanwhile, Brent oil for September delivery stood at $108.48 a barrel at 8:37 GMT, up 0.38% on the day. Prices varied between days high and low of $108.64 and $108.18 a barrel respectively. The European benchmark settled 0.3% lower on Friday, extending last weeks decline to 0.55% amid concern over demand in Europe and China and improving self-sustainability in the U.S.

WTI was boosted last week following a third straight week of unexpectedly high drops in U.S. crude oil inventories and overall positive U.S. data, which boosted demand outlook from the worlds top consumer. According to EIAs weekly oil inventories report last week, reserves fell by 6.9 million barrels to 367.0 million in the week ending July 12, extending the previous two weeks all-time high record decline in inventories. Refineries operated at 92.8% of their operable capacity last week, the highest this year. Crude stockpiles at Cushing, Oklahoma, the delivery point for futures traded at the New York Mercantile Exchange and biggest U.S. storage hub fell by 882 000 barrels to 46.1 million.

Gasoline production decreased, while distillate fuel output increased, averaging 9.0 million and 5.1 million barrels per day respectively. U.S. gasoline stockpiles added 3.1 million barrels last week, standing well above the upper limit of the average range for this week of the year. Distillate fuel inventories increased by 3.9 million and were in the lower half of the average range.

Meanwhile, the U.S. Labor Department said in its report that fewer people than expected filed for unemployment benefits, compared to the previous one. Initial Jobless Claims during the week ending July 13 fell to 334 000, exceeding expectations of a drop to 345 000 from the preceding week’s downward revised reading of 358 000. The four-week moving average fell by 5 250 to 346 000, down from the previous week’s revised average of 351 250.

According to data from the U.S. Commodities Futures Trading Commission, traders boosted their long positions in oil to the highest level since April 2011. Wagers that prices will climb rose by 8% to 304 383 futures and options combined in the seven days ended July 16.

Oil and other dollar-denominated commodities also drew support as Fed Chairman Ben Bernanke reiterated his preceding week’s statement at his two-day testimony to Congress on Wednesday and Thursday. Bernanke reinforced Fed’s view that Quantitative Easing is still expected to be tapered within the year and brought to an end by mid-2014, if the requirements are fulfilled. However, the Fed chief stated the U.S. economy currently needs Fed’s accommodative monetary policy in the foreseeable future and it can even be accelerated, if recovery slows its pace.

Tetsu Emori, a commodities fund manager at Astmax Investments in Tokyo, said for Reuters: “The U.S. contract will be the main driver of oil with Brent tracking the U.S. contract. The United States is using more and more of its own oil, which means less demand for barrels priced in Brent.” He expects the spread between the two contracts to remain narrow for the rest of the year, with both surging. Light, sweet crude might surge to $115 by the end of the year, where as Brent might gain to the same levels and jump to $120 – $125 if geo-political tensions arise and there is a supply shock.

Ric Spooner, a chief market analyst at CMC Markets in Sydney, said for Bloomberg: “Weve shown signs in the past week of developing an investor consensus and that’s put us into a trading range. Youd need some pretty compelling news for WTI to rise above $110 to $115 a barrel.”

WTI surpassed Brent in intraday trading on Friday but after that eased and the European benchmark regained its premium to West Texas Intermediate, which narrowed from as much as $23.44 in February. The parity between the two benchmarks came as increased pipeline capacity and rail shipments helped drain the glut of oil at Cushing, Oklahoma. Stockpiles at the biggest U.S. storage hub and delivery point of the New York Mercantile Exchange have fallen to 46 millions from 52 million in January.

Meanwhile, oil was also supported as the Group of 20 which accounts for 90% of the world economy pledged to put growth before austerity, fueling hope of a recovery in commodities consumption. Oil drew further support as China urged local governments to support economic growth by speeding up spending this year’s budget. The country also made a move to remove controls on bank lending rates, which should provide cheaper credit and lower financial costs for companies, spurring economic growth.

Market players will be looking on Monday into Halliburtons quarterly results, the worlds second largest oilfield service company. The report will provide information of how much capital for exploration and production companies that use services and technologies by Halliburton and its rivals are willing to spend. Increasing demand for such services is a sign that companies expect oil prices to climb.