November 1, 2013 5:43 pm

US oil sinks to four-month low

US oil tumbled to a four-month low as refinery and pipeline maintenance led to an inventory build-up at a key delivery point in Oklahoma.

Nymex December West Texas Intermediate fell below the $95-a-barrel level for the first time since the end of June.

It lost 3 per cent on the week to $94.66 a barrel and was set to post its fourth consecutive weekly decline.

WTI, which has traded at a discount for the past few years to the global benchmark Brent thanks to the supply increases from shale production and also transport bottlenecks, jumped this summer thanks to pipeline reversals and demand from US refineries.

However, after briefly trading at a premium to Brent in July, the US benchmark has weakened and traded as much as $13.60 a barrel discount to Brent on Thursday.

On one hand, the global benchmark has been supported by production disruptions in Libya and Iraq while on the other, WTI has weakened due to the stock pile-up at Cushing, Oklahoma, the delivery point for the US benchmark.

ICE December Brent was trading down 28 cents from a week ago at $106.65 a barrel.

The discount could widen further as Brent may receive a further boost relative to the US benchmark following the reweighting of one of the key commodities indices.

Investors will be forced to buy billions of dollars of Brent and sell WTI crude after S&P Dow Jones Indices and UBS Investment Bank said it would further increase the weighting of the North Sea benchmark at the expense of the US benchmark.

The change for the Dow Jones-UBS commodity index, one of the key benchmarks followed by institutional investors such as pension funds, comes into effect in January.

The index only included the Brent contract as a component in 2012 but the benchmark’s weighting has steadily risen from the initial 5.3 per cent.

S&PDJI said it had increased its 2014 weighting for Brent to 6.5 per cent of the overall index from this year’s 5.8 per cent while the weighting for WTI was cut from 9.2 per cent to 8.5 per cent.

The move will affect the number of outstanding Brent and WTI contracts on the commodities two exchanges as they fight for market share in oil trading.

Brent, linked to crude from the North Sea, is the flagship futures contract on London’s ICE Futures Europe exchange, a unit of Atlanta-based IntercontinentalExchange. WTI is the main oil contract at the Nymex, owned by the CME Group.

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