Article Highlights

  • Monday U.S. holiday pulls WTI's Friday gain into Tuesday
  • Firmer dollar dents international Brent crude
  • Overall markets well supported by ongoing OPEC production cuts
  • Soaring U.S. output threatens to undermine OPEC efforts
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Brent crude oil prices eased on Tuesday, pulled down by a stronger dollar and a bout of profit-taking, while U.S. futures gained, bringing the discount between the two key futures contracts to a six-month low.

Brent crude futures were down 51 cents from Monday’s close at $65.16 a barrel by 1253 GMT, while U.S. West Texas Intermediate (WTI) crude futures were up 41 cents from their last close on Friday at $62.09 a barrel.

Reduced supply from Canada to the United States caused by pipeline reductions were supporting WTI, traders said .

Brent is trading at a premium of less than $3 a barrel to WTI, down from over $$7 at the start of the year.

A narrower premium of Brent to WTI means it is also less attractive for consumers in north-west Europe to import U.S. crude, especially with refiners conducting maintenance. Premiums for local North Sea grades are at multi-month lows.

Logistical constraints in the United States have even caused prices for regional grades to diverge.

“Less crude oil is being transported from Canada to Cushing due to the restricted capacity of the Keystone pipeline. And for another, new pipeline capacities mean more crude oil is leaving Cushing,” Commerzbank analysts said in a note.

“Light Louisiana Sweet, the reference type for comparable oil on the U.S. Gulf Coast, even costs only $2 more than WTI. It therefore makes hardly any sense for refineries on the Gulf Coast to buy WTI from Cushing – indeed this would not be cost effective at all if the price gap narrowed any further.”

Louisiana light sweet crude is trading at a premium of around $2 a barrel to WTI, down from nearly $5 a month ago.

Overall, oil markets remain supported by supply restraint on the part of the Organization of the Petroleum Exporting Countries (OPEC), which started last year to draw down excess global inventories.

“OPEC and Russia continue to support the production cuts that are due to expire at the end of this year, and they assure markets that there will be an orderly ramp-up of production once the cuts expire,” said William O’Loughlin, analyst at Rivkin Securities.

Saudi Arabia – not least in an attempt to give the planned listing of its state-owned oil giant Saudi Aramco a boost – wants Russia and other producers to keep withholding supplies to prop up prices. But soaring U.S. production is threatening to erode those OPEC’s efforts.

Last week, the number of U.S. oil rigs drilling for new production rose for a fourth straight week to 798, an indication that U.S. crude output, already at a record 10.27 million bpd, may rise further.