US oil futures ended higher for the second day in row on Friday while European Brent crude fell, tightening the trans-Atlantic spread as traders bet that increasing refinery operations and a major new Midwest pipeline will slow the rise in inventories. Brent was pressured by news that Scotland's Grangemouth refinery, which provides power for a major oil pipeline, will remain open, keeping streams of the North Sea crude that underpins the Brent contract flowing.
"It seems as if that situation in Scotland has resolved itself and you're witnessing profit taking in the Brent/WTI spread," said Gene McGillian, analyst with Tradition Energy in Stamford, Connecticut. US gasoline futures fell after gaining sharply in the previous session on news of a fire at Citgo's Lemont, Illinois, refinery. Gasoline futures traded lower for much of the session but ended virtually flat at $2.5871 per gallon.
Traders sold crack spreads as supplies of the fuel remain high, some brokers said, but the contract ended virtually flat on the day. US crude oil ended 74 cents higher at $97.85 a barrel but finished the week with a 3 percent loss and its third weekly decline. Brent crude for December ended 6 cents a barrel lower at $106.93, its third day of losses and second weekly decline. Brent ended the week 2.7 percent lower, its biggest weekly decline in one month.
Brent's premium over US oil narrowed by as much as $1.16 by early afternoon to trade at a low of $8.72, breaching the 15-day moving average of $8.87 for the first time in one month. The spread settled at $9.08. US crude oil prices have been pressured by a seasonal dip in demand and increasing domestic oil production that has boosted stockpiles, particularly on the US Gulf Coast. Signs of growing inventories pushed the Brent/WTI spread to a near seven-month low of more than $13 a barrel earlier this week.
Some traders and analysts said that the spread's move had been overdone, and by Friday the market had returned its focus to refineries returning from maintenance and the start-up of TransCanada's MarketLink pipeline to the Gulf. The line, which is due to begin filling next month, will drain supplies from the oil hub in Cushing, Oklahoma by creating another link to the Gulf Coast. Economic data reflecting a slowdown from the fallout of the partial government shutdown kept a lid on prices. A durable goods report showed new orders outside of transportation equipment fell in September in a possible sign companies were holding back on investments due to uncertainty over government spending.
Speculators cut their net long US crude futures and options positions in the week to October 1, the US Commodity Futures Trading Commission (CFTC) said on Friday. The data was delayed due to the partial government shutdown. The CFTC will release subsequent reports over the next two weeks. In the European oil market, Brent oil was also pressured on higher output from several producers in the Middle East and North Africa, analysts said.
"Balances are not as tight as we, or the market, had expected," said Virendra Chauhan, oil analyst at London-based consultancy Energy Aspects. "The worst of this year's supply shortfalls is now behind us, with maintenance at non-Opec fields largely complete and some of the lost Opec production also coming back in Libya, Nigeria and Iraq," Chauhan added.