Brent eases, while lower Canadian supply underpins U.S. crude

By Amanda Cooper

LONDON (Reuters) – Brent oil prices fell on Tuesday, under pressure from a stronger dollar and a bout of profit-taking, while U.S. futures held steady, bringing the discount between the two key futures contracts to a six-month low.

futures were down 65 cents from Monday’s close at $65.02 a barrel by 1509 GMT, while U.S. West Texas Intermediate (WTI) crude futures were up 2 cents from their last close on Friday to $61.70 a barrel.

Brent was trading at a premium to WTI of over $7 a barrel at the start of the year.

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

A narrower premium of Brent to WTI means it is also less attractive for consumers in northwest Europe to import , 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. [CRU/C]

“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 (DE:) 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.

Ayed Al Qahtani, OPEC’s head of research, said at an industry conference on Tuesday that the excess of oil held in storage has fallen in the past year to stand 74 million barrels above the five-year average.

This compares with a surplus of around 340 million barrels in January 2017, he said.

“The latest discussions of the Joint Technical Committee of OPEC and non-OPEC nations concluded that the oil stocks are dissipating at a faster pace and the market will now rebalance between 2Q and 3Q,” Goldman Sachs (NYSE:) said in a daily note.

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