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WTI Crude Falls Most in Two Months on U.S. Supply as Brent Drops

March 5 (Bloomberg) -- West Texas Intermediate crude dropped the most in two months and Brent oil decreased after a government report showed that U.S. inventories advanced for a seventh week.

Futures fell 1.8 percent in New York after the Energy Information Administration said supplies rose by 1.43 million barrels to 363.8 million last week. Refineries operated at 87.4 percent of capacity, down 0.6 percentage point from the prior week. Refiners are performing maintenance as they transition to summer from winter fuels. Oil also slipped on speculation that Ukraine’s crisis won’t disrupt shipments.

“The combination of higher crude supplies and lower refinery runs is bearish,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We should see additional supply gains in the weeks ahead as refineries perform maintenance.”

WTI for April delivery dropped $1.88 to $101.45 a barrel on the New York Mercantile Exchange. It was the lowest settlement since Feb. 14. Prices dropped the most since Jan. 2. The volume of all futures traded was 24 percent higher than the 100-day average at 3:45 p.m.

Brent for April settlement declined $1.54, or 1.4 percent, to end the session at $107.76 a barrel on the London-based ICE Futures Europe exchange. Trading was 25 percent above the 100- day average.

The European benchmark closed at a $6.31 premium to WTI. The spread has narrowed from a 2014 high of $14.88 on Jan. 13.

Crude supplies were projected to climb 1.3 million barrels in the seven days ended Feb. 28, according to the median of nine analyst estimates in a Bloomberg survey.

U.S. Output

U.S. crude production advanced to 8.08 million barrels a day, according to the EIA, the Energy Department’s statistical arm. It was 8.16 million in the week ended Jan. 10, the highest level since 1988, as output surged on a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies trapped in shale formations in the central parts of the nation.

Crude supplies at Cushing, Oklahoma, the delivery point for the WTI contract, fell 2.66 million barrels to a two-year low of 32.1 million in the seven days ended Feb. 28, the EIA report showed. The opening in January of the southern link of TransCanada Corp.’s Keystone XL pipeline to the Texas Gulf Coast from Cushing eased a bottleneck at the hub.

Stockpiles along the Gulf of Mexico, known as PADD 3, rose 4.38 million barrels last week to 182 million, the highest level since Dec. 6, the report showed.

Moving Barrels

“We’re been seeing a transfer of barrels from Cushing to the Gulf Coast since the southern link of the Keystone began operating a few weeks ago,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “This trend should continue. The Brent-WTI spread should continue to come in as barrels move out of Cushing.”

Stockpiles of distillate fuel, a category that includes heating oil and diesel, rose 1.41 million barrels to 114.5 million. Gasoline inventories decreased by 1.6 million barrels to 229 million last week, the report showed.

“We’re heading into a shoulder season where demand from refiners will be low,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $110 billion of assets. “The market looks weak until refiners end their maintenance and gasoline demand picks up in the second quarter.”

WTI dropped 1.5 percent yesterday, the biggest decline in two months, after Russian President Vladimir Putin said he sees no immediate need to invade eastern Ukraine. Top U.S. and Russia diplomats will meet to try to reduce tensions in Ukraine’s Crimea region, with U.S. Secretary of State John Kerry scheduled to meet Russian Foreign Minister Sergei Lavrov in Paris today.

Ukraine Pipeline

About 313,000 barrels of crude a day transited via Ukraine in 2013, according to the country’s Energy Ministry. The southern branch of the Druzhba pipeline moves Russian oil through the Ukraine to European refineries.

“The realization that there’s little risk of a disruption of Russian oil shipments to Europe is weighing on the market,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.

WTI also fell on weaker-than-estimated U.S. February payroll and services data. Companies added 139,000 workers last month, fewer than the 155,000 advance estimated by economists, a report from the ADP Research Institute in Roseland, New Jersey, showed. The Institute for Supply Management’s non-manufacturing index fell to 51.6, the slowest pace in four years.

U.S. Employment

The Labor Department will release its February jobs report on March 7. Economists estimate employers increased the pace of hiring to 150,000 workers after adding 113,000 in January, according to a Bloomberg survey.

“We had weak data today and will probably get more on Friday,” Haworth said. “The demand will be muted because the February numbers were impacted by the cold weather.”

Investors added a net $8.52 million yesterday to U.S.- listed exchange-traded funds that invest in energy, equivalent to 0.2 percent of total assets, data compiled by Bloomberg show. They added $29.7 million to the United States Oil Fund, the biggest oil ETF.

Implied volatility for at-the-money WTI options expiring in April was 19 percent, down from 19.1 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 564,635 contracts at 3:46 p.m. It totaled 467,847 contracts yesterday, 6.6 percent below the three-month average. Open interest was 1.69 million contracts.

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