Oil. Picture: REUTERS
Oil. Picture: REUTERS

London — Brent crude oil prices fell on Tuesday, pulled down by a stronger dollar and a bout of profit-taking, while US futures gained, bringing the discount between the two key futures contracts to a six-month low.

Brent crude futures fell 73c from Monday’s close to $64.94 a barrel by 10.17am GMT, while US West Texas Intermediate (WTI) crude futures were up 20c from their last close on Friday at $61.88 a barrel. Reduced supply from Canada to the US 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 more than $$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 US crude, especially with refiners conducting maintenance. Premiums for local North Sea grades are at multi-month lows.

Logistical constraints in the US 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 US 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 about $2 a barrel to WTI, down from nearly $5 a month ago.

Overall, oil markets remain supported by supply restraint on the part of oil cartel 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 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 US production is threatening to erode Opec’s efforts.

Last week, the number of US oil rigs drilling for new production rose for a fourth straight week to 798, an indication that US crude output, already at a record 10.27-million barrels per day (bpd), may rise further.