The premium of the global benchmark over U.S. crude has narrowed by about $3 since Wednesday's settlement. Before dawn the narrowing came from Brent falling; by midday it came from U.S. crude rising, as government data showed an 8.6 million-barrel drop in American inventories.
The gap between Brent and West Texas Intermediate kept closing on Thursday. What changed during the day was which benchmark was doing the closing.
At Wednesday's settlements, Brent stood at $106.06 a barrel and WTI at $95.09, a spread of about $10.97. Early Thursday, Brent had dropped to $103.87 while WTI barely moved, to $94.82, leaving a spread of about $9.05. By about 1:45 p.m. Eastern, Brent had climbed back to roughly $105.95, almost exactly where it settled Wednesday. WTI, though, had kept going, to about $97.98, up about 3%. The spread was near $7.97.
Splitting the move
Measured from Wednesday's settlements, Brent was down 11 cents and WTI up $2.89 by early afternoon. Of the roughly $3 the spread has compressed, about 96% now comes from U.S. crude rising rather than Brent falling, by this publication's arithmetic. Before dawn the split had run the other way. The morning question was what was weighing on the seaborne benchmark. The afternoon question is what is lifting the inland one.
What the government counted
Part of the answer arrived at noon. American commercial crude stocks shrank by 8.557 million barrels in the week ended Oct. 9, the Energy Information Administration reported, at a time when analysts had expected little change. A week earlier the draw was 3.186 million barrels. The emergency reserve was untouched, so every barrel came from commercial storage.
Diesel and heating oil inventories dropped 2.527 million barrels, deeper than the 1.6 million forecast. Gasoline stocks rose 3.518 million barrels. Cushing, Okla., where WTI futures are delivered, added 1.862 million barrels, and refiners lifted utilization by 0.8 percentage point. Counting the reserve and refined products, total U.S. petroleum holdings declined 13.4 million barrels.
The release came on Thursday because of Monday's federal holiday.
WTI's climb began before the noon release, after an industry survey earlier in the week had pointed to an 11.1 million-barrel decline. The official number confirmed the direction rather than starting the move.
Two ways to read a shrinking spread
If U.S. barrels are being drawn abroad to cover lost Gulf supply, inventories here should keep falling and the WTI discount should keep narrowing, because American crude is being priced against the global market rather than against local storage. A large draw at a time when Brent holds above $100 fits that story, though the export figures in the weekly report will need to confirm it.
The alternative is that one week of data is overstating a trend. Cushing stocks rose, gasoline stocks rose sharply, and more supply is on the way: Spain plans to release 4.4 million barrels from reserves this month, and the International Energy Agency's Governing Board met Thursday on the details of a coordinated 100 million-barrel release of crude and diesel.
Energy equities did not follow WTI. The Energy Select Sector SPDR fund fell about 1.6%, and heating-oil futures were also down about 1.6%.
What to watch
The spread is the gauge. A sustained move toward $7 alongside another large U.S. draw would point to American crude being pulled into the global market. A rebound toward $10 once reserve barrels start to arrive would point to Thursday as a one-week catch-up. Next week's inventory and export data and the timing of the IEA release will settle which.