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At 1327 GMT, Brent crude futures had risen 70 cents on the day
to $78.42 a barrel, while U.S. West Texas Intermediate crude was
down $1.1 to $67.11 a barrel.
That pushed the premium of Brent to WTI beyond $11 a barrel, the
largest since March 2015. That spread has doubled in less than a
month, as a lack of pipeline capacity in the United States has
trapped a lot of output inland.
"The Brent/WTI is blowing out. I think there must be what looks
like some capitulation going on in the spread between those two
contracts," Saxo Bank senior manager Ole Hansen said.
The wider premium makes U.S. crude exports more competitive than
those linked to the Brent price, such as North Sea or West
African grades of oil.
U.S. crude stockpiles rose by 1 million barrels in the week to
May 25, according to the American Petroleum Institute (API).
Analysts had expected a drop of 525,000 barrels, which dented
U.S. futures earlier in the day. [API/S]
Brent meanwhile slid to a three-week low below $75 a barrel on
Monday after the Organization of the Petroleum Exporting
Countries and its non-OPEC allies including Russia indicated
they could adjust their deal to curb supplies and increase
production.
Sources told Reuters that Saudi Arabia, the effective leader of
OPEC, and Russia were discussing boosting output by about 1
million barrels per day (bpd) to compensate for losses in supply
from Venezuela and to address concerns about the impact of U.S.
sanctions on Iranian output.
"The fact that we saw the Saudi/Russia announcement last week
could have attracted some interest in narrowing the spread,
given that we were looking for some of the geopolitical risk (in
Brent) to be removed, but that's been overtaken by the domestic
widening in crude prices in the U.S.," Hansen said.
Prices for physical barrels of U.S. light sweet crude delivered
at Midland are at their largest discount to the benchmark U.S.
futures price in almost four years. [CRU/O]
"U.S. shale is alive and well and growing at an annual rate well
in excess of 1 million bpd," consultant JBC Energy said in a
report. "Growth is expected to remain in place, but widening
crude differentials due to infrastructure bottlenecks do
actually speak in favor of a slowdown in growth."
OPEC and non-OPEC producers have committed to cut output by 1.8
million bpd until the end of 2018 but will decide at a meeting
in late June whether to prolong this.
"If this is a real correction, then the price should get down to
the low $70s or even the mid-$60s," SEB chief commodities
analyst Bjarne Schieldrop said. "The market needs to be cautious
ahead of the OPEC meeting."
(Additional reporting by Roslan Khasawneh in Singapore and Jane
Chung in Seoul; Editing by Susan Fenton and Mark Potter)
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