Brent premium over WTI hits new three-year high

Gold slips

LONDON, June 2, (RTRS): The spread between Brent crude oil futures contracts and US WTI hit a fresh three-year high on Friday with the latter set for a second consecutive week of declines as US oil output comes close to matching that of top producer Russia.

The premium doubled in about a month as a lack of pipeline capacity in the United States traps much of the output inland.

The spread between the two benchmarks, which climbed above $11.50 a barrel, had narrowed slightly by 13:55 GMT to about $10.54 as Brent erased some of its earlier gains.

US crude production has been rising to record levels since late last year. In March, it jumped 215,000 barrels per day (bpd) to 10.47 million bpd, a new monthly record, the Energy Information Administration said on Thursday.

“The move on that spread is difficult to anticipate as it does not necessarily react to news, headlines,” Petromatrix said in a note. “One can be long or short on either of the benchmarks and be stoppedout by the volatility of the BrentWTI.”

Stockpiles

WTI fell 45 cents to stand at $66.59 a barrel. For the week, WTI was on track for a 1.9 percent fall, adding to last week’s near 5 percent decline and shrugging off a 3.6-million-barrel drop in US crude stockpiles last week.

Global benchmark Brent initially stayed within Thursday’s range but then fell 62 cents to $76.94 per barrel. It was still set to rise 0.6 percent for the week.

Sources told Reuters last week that Saudi Arabia, the effective leader of OPEC, and Russia were discussing boosting output by about 1 million bpd to compensate for losses in supply from Venezuela and to address concerns about the impact of US sanctions on Iranian output.

This pushed Brent to a threeweek low below $75 a barrel on Monday. Brent recovered some ground, however, when a Gulf source flagged that any rise in production would be gradual.

Russia would be able to raise its oil output within months to levels last seen before a global production-cutting deal took effect if there is a decision to unwind the pact, a Russian Energy Ministry official said.

Meanwhile, gold fell on Friday after stronger than forecast US payrolls data boosted expectations that the Federal Reserve will press ahead with another US interest rate hike this month, lifting the dollar.

The metal is highly sensitive to rising rates, which increase the opportunity cost of holding nonyielding bullion, while boosting the dollar, in which it is priced.

Spot gold was down 0.3 percent at $1,294.06 an ounce by 13:22 GMT, having earlier edged just above $1,300 an ounce. US gold futures for August delivery were down 0.4 percent at $1,298.90 an ounce.

The dollar rose against the euro and Treasury yields hit session highs after the payrolls report showed the US economy added 223,000 jobs last month, well ahead of expectations for 188,000 jobs.

The stronger dollar is not playing in favour of higher gold prices, Capital Economics analyst Simona Gambarini said. “There is not much interest at the moment in getting into the gold market, with the Federal Reserve meeting just (a short way) away,” she said.

“Investors are waiting to see whether the Fed will hike rates again, and what their take on inflation and those risks in Europe and with trade will be.” While the euro failed to sustain gains it made earlier against the dollar after the apparent end of a political crisis in Italy that had rattled markets this week, world stocks stayed in the black as investors welcomed the Italian deal.

However, investors remain concerned over a trade stand-off between the United States and its trading partners, which deepened on Thursday after the US went ahead with tariffs on aluminium and steel imports from Canada, Mexico and the European Union, ending a two-month exemption.

Benefit

While a worsening global trade situation could benefit gold if it curbs appetite for assets seen as higher risk, it is not yet offsetting the negative impact of an expected increase in rates, and the effects of that on the dollar.

“While geopolitics are dominating the headlines, neither renewed trade tensions nor the crisis in Italy ignited safe-haven demand for gold,” Julius Baer said in a note on Friday.

“Prices continue to follow the US dollar, leaving gold in ‘currency mode’ rather than ‘commodity mode’.” Holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Shares , fell 0.52 percent to 847.03 tonnes on Thursday.

Among other precious metals, silver was up 0.6 percent at $16.45 an ounce, while platinum was 0.6 percent higher at $907.10 and ounce and palladium was up 0.7