West Texas Intermediate (NYMEX:CLN14) and Brent (NYMEX:SCN14) crudes fell after the European Central Bank cut its deposit rate below zero, increasing concern that economic growth is stalling. The U.S. and its allies embarked on two days of contacts with Russia in a bid to end the Ukraine crisis.
WTI sank as much as 1 percent. ECB President Mario Draghi reduced the deposit rate to minus 0.1 percent from zero, making the institution the world’s first major central bank to use a negative rate. Russian leaders are joining events in northern France to mark the 70th anniversary of the D-Day allied landings during World War II.
“The ECB cut to negative rates is a sign of how concerned they are about deflation in Europe and bodes poorly for European commodity demand,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “There will be a number of meetings between Russian leaders and their western counterparts over two days, which could help ease geopolitical concerns about Ukraine.”
WTI for July delivery declined 90 cents, or 0.9 percent, to $101.74 a barrel at 10:17 a.m. on the New York Mercantile Exchange. The contract touched $101.60, the lowest intraday level since May 16. The volume of all futures traded was 1.7 percent above the 100-day average for the time of day.
Brent for July settlement fell 55 cents, or 0.5 percent, to $107.85 a barrel on the London-based ICE Futures Europe exchange. Volume was 33 percent higher than the 100-day average. The European benchmark crude traded at a premium of $6.06 to WTI. The spread closed at $5.76 yesterday, the narrowest since April 15.
A worsening in the economic outlook and a prolonged spell of slower inflation has prompted the ECB to act to preserve the fragile recovery in the world’s second-largest economy. In a bid to get credit flowing to parts of the economy that need it, the central bank also opened a 400-billion-euro ($542 billion) liquidity channel tied to bank lending and officials will start work on an asset-purchase plan.
The dollar (NYBOT:DX) touched a four-month high against the euro (CME:EC) after the announcement before retreating to trade little changed at $1.3612 per euro. A stronger U.S. currency reduces the appeal of dollar-denominated raw materials as an investment.
U.K. Prime Minister David Cameron will meet Vladimir Putin in Paris this evening, before the Russian president has dinner with French President Francois Hollande. U.S. Secretary of State John Kerry also holds talks with Russian Foreign Minister Sergei Lavrov in Paris today.
“There’s a lot of speculation about what will happen in Brussels and France over the next couple days,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We could see an agreement that eases tension in eastern Ukraine come out of the meetings.”
Group of Seven leaders, meeting in Brussels last night, spared Russia more sanctions over Ukraine, while urging it to complete the pullback of its troops from the country’s border.
Russia’s seizure of Crimea and menace to eastern Ukraine led the U.S. and the European Union to impose asset freezes and travel bans on 98 people and 20 companies, while stopping short of broader curbs on investment and trade that might also damage their economies.
U.S. crude supplies slipped by 3.43 million barrels to 389.5 million last week, the Energy Information Administration reported yesterday. They reached 399.4 million in April, the most since the Energy Department’s statistical arm started publishing weekly data in 1982. Stockpiles at Cushing, Oklahoma, the delivery point for WTI, dropped 321,000 barrels to a five- year low of 21.4 million.
“We have pretty healthy storage levels overall,” Yawger said. “Product supplies are up and overall crudestocks are ample. For some reason the market’s not too concerned about Cushing right now.”
Stockpiles of distillate fuel, a category that includes diesel and heating oil, gained 2.01 million barrels to 118.1 million, the most since January, according to the EIA. Gasoline supplies rose 210,000 barrels to 211.8 million.
Ultra low sulfur diesel for July delivery rose 0.32 cent to $2.8513 a gallon on the Nymex. Futures settled at $2.8481 yesterday, the least since Nov. 7.
Gasoline for July delivery fell 0.86 cent, or 0.3 percent, to $2.9266 a gallon in New York.
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