The front-month Brent-WTI spread settled at a fresh five-month low of $6.48/barrel Friday, as steady drawdowns in crude stocks at the Cushing, Oklahoma, delivery hub have lent upside support to WTI, while Brent remains subdued.
NYMEX April crude settled 19 cents higher at $102.59/b on moderate support from a firm US equities market, but upside gains were limited by a disappointing revision to the fourth quarter US GDP estimate.
ICE April Brent settled 11 cents higher at $109.07/b. The front-month Brent-WTI spread dropped as low as $6.29/b during the session.
In products, NYMEX March ULSD settled 28 points higher at $3.0893/gal and March RBOB ended 2.8 cents higher at $2.7898/gal.
US Energy Information Administration data Wednesday showed Cushing crude stocks last week fell for the fourth consecutive week, down 1.08 million barrels to 34.79 million barrels. The draw puts stocks at the hub at a 7.16% deficit to the EIA five-year average, providing underlying support for WTI, analysts said.
For ICE Brent, analyst Addison Armstrong of Tradition Energy said the front-month contract has been reacting more to the prospects for slowing economic growth in China and lower crude throughput at US refineries in the second quarter than to the decidedly bullish news that OPEC output in January dropped to its lowest level in more than two and a half years.
Armstrong said concerns over economic growth in China remains the biggest weight on Brent futures.
"[China] is the main driver of demand growth and it appears to be slowing down economically and that is one things that has kept a lid on that market," Armstrong said.
However, he added, that concerns over slowing Chinese demand does seem to be already discounted by market.
"It is known and there aren't any real surprises... we see the banking sector and can extrapolate the efforts by the [Chinese] government and central bank to ease off on credit creation, particularly in the property (housing) sector," Armstrong said.
"China's growth won't go to zero," he said.
Matt Smith, commodity analyst at Schneider Electric, said the narrowing of the Brent-WTI spread was more about WTI catching up to gains in Brent rather than a major change in fundamentals for the US-based benchmark.
"The moves have really been about WTI playing catch up," Smith said, noting that ICE front-month Brent dipped early in the session close to its 200-day moving average at $108.20/b but was able to remain above that level.
Smith said ongoing concerns over Libyan oil output, where production in the country is said to have fallen to 230,000 b/d, are keeping Brent buoyant.
On Friday, the US Commerce Department revised its estimate for fourth quarter GDP to a 2.4% annual rate. That's down sharply from the 3.2% pace reported last month. In the third quarter, GDP expanded at a 4.1% rate.
Tim Evans, commodity analyst at Citi Futures Perspective, said oil demand "hasn't always tracked closely with GDP and US Q4 demand has already been estimated at 4.1% higher than a weak Q4 2013, but the GDP numbers do still sometimes trigger some risk-on or risk-off trade flow."
Evans added that an uptick in consumer sentiment, however, may have been an offset to the downward revision in GDP."
The Thomson Reuters/University of Michigan consumer sentiment index rose to 81.6 in February, beating market estimates, from 81.2 in January.
