US oil futures extended their move lower for a second consecutive day on Wednesday after government data showed large inventory builds, further pressuring the domestic oil's discount to international benchmark Brent. Disruptions to Libyan oil exports have cut supplies to Europe and Asia while supporting Brent prices. The divergent courses of the North American and international oil markets boosted Brent's premium over the US benchmark to more than $12 a barrel.
The US Energy Information Administration reported a sharp 4.1-million-barrel rise in crude stocks in the United States. Supplies at the Cushing, Oklahoma, US oil storage hub rose 2.2 million barrels, their third straight weekly rise. Brent crude for December delivery was trading up 32 cents at $109.33 a barrel by 1:14 pm EDT (1714 GMT), after falling 60 cents on Tuesday. It touched an intraday high of $109.65 on Wednesday. US crude was $1.08 per barrel lower at $97.12, having hit an intraday low of $96.86.
US gasoline futures rose 2.20 cents to $2.6318 per gallon after a report that Irving Oil Ltd will return to service its gasoline-making unit at its 300,000 barrel per day Saint John, New Brunswick, refinery. The November RBOB contract expires at the end of trading on Thursday. The discount of West Texas Intermediate (WTI) - the US oil grade that underpins the benchmark oil futures contract - to Brent expanded to $12.16 a barrel just after inventory data were released. The spread stretched to $12.47 - in afternoon trade, its widest in a week - putting it on track for its widest settlement since early April. Analysts are calling for the spread to narrow as US refineries emerge from maintenance season, which has slowed domestic demand for crude.
"The widening spread will encourage refiners to return to production and eventually narrow the spread," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis. While US oil prices sank, Brent prices were supported by weekend reports of a sharp drop in Libya's crude oil exports, as protests have halted operations at ports and fields.
Italian energy major Eni, the biggest foreign producer in Africa, cut its production outlook for 2014 due to supply cuts in Libya and Nigeria. Traders were also looking ahead to comments expected at 2 pm EDT (1800 GMT) from the US Federal Reserve after its two-day policy meeting. A mixed bag of US economic data over the last few days has reinforced expectations the Fed will not reduce its $85 billion of monthly asset purchases until March at the earliest, which would underpin oil prices.
Investors will also keep an eye on a series of technical and diplomatic meetings on Iran's nuclear program, which could pave the way for an easing of sanctions on Iranian oil exports. Any increase in Iranian oil exports may take some time, however, while the US Senate is debating fresh sanctions aimed at further curbs of the country's oil sales, an influential senator said.