WTI crude fell from the highest level of 2014 on concern that developing economies

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West Texas Intermediate crude fell from the highest level of 2014 on concern that developing economies may shrink. The U.S. benchmark grade’s discount to Brent oil narrowed to the least in more than three months.

Futures dropped 0.8 percent. Emerging-market currencies weakened this week as Chinese growth slowed and the Federal Reserve further cut stimulus. About $1.8 trillion has been erased from the value of equities worldwide in January. The WTI-Brent spread slipped as cold weather in the eastern U.S. bolstered the relative value of the U.S. grade.

“We’re seeing a bit more correlation between oil and the global markets,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $110 billion of assets. “Some of the concern about emerging markets is bleeding into crude.”

WTI for March delivery fell 74 cents to settle at $97.49 a barrel on the New York Mercantile Exchange. WTI closed at $98.23 yesterday, the most since Dec. 31. The volume of all contracts traded was 9.7 percent higher than the 100-day average at 3:32 p.m. Futures rose 0.9 percent this week and dropped 0.9 percent this month. Prices are unchanged from a year ago.

Brent for March settlement decreased $1.55, or 1.4 percent, to end the session at $106.40 a barrel on the London-based ICE Futures Europe exchange. Volume was 3.6 percent above the 100-day average. The European benchmark traded at a $8.91 premium to WTI, down from $9.72 yesterday. It is the smallest spread since Oct. 17.

Cheap Money

Emerging economies have benefited from cheap money as three rounds of Fed bond-buying pushed capital into their borders in search of higher returns. The central bank began paring the purchases by $10 billion to $75 billion this month and announced plans Jan. 29 to reduce the amount by another $10 billion.

Government data tomorrow may show a manufacturing index in China, the world’s largest oil-consuming country after the U.S., fell to the lowest level in six months, a Bloomberg survey showed. The Purchasing Managers’ Index probably slid to 50.5, according to the survey conducted before data from the National Bureau of Statistics and the nation’s logistics federation.

The Thomson Reuters/University of Michigan final January index of U.S. consumer sentiment fell to 81.2 from 82.5 a month earlier, a report showed today. The median forecast of 68 economists in a Bloomberg survey called for 81 after a preliminary reading of 80.4.

“Markets are down on worries about what’s going on in emerging economies,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The oil market is overdue for a pullback after the recent rally.”

European Inflation

Euro-area inflation remained below half of the European Central Bank’s target in January, driven by falling energy prices, adding to the case for policy makers to cut interest rates next week. Consumer prices rose an annual 0.7 percent after a 0.8 percent gain in December, the European Union’s statistics office in Luxembourg said today. The Frankfurt-based central bank aims to keep inflation at just under 2 percent.

Oil in New York will probably fall next week, a Bloomberg survey showed. Seventeen of 31 analysts, or 55 percent, forecast crude will decrease through Feb. 7, according to the survey. Eight respondents, or 26 percent, projected prices will gain, and six said there will be little change.

Cold Weather

Crude losses eased as diesel surged to a 22-month high after frigid weather in the U.S. Northeast depleted supplies around New York Harbor, the delivery point for futures. Stockpiles near in the mid-Atlantic region are the lowest since 2008, according to data from the Energy Information Administration. Diesel and heating oil are similar fuels.

The Standard & Poor’s 500 Index tumbled as much as 1.2 percent. It was down 0.4 percent at 3:32 p.m. in New York.

“WTI started the day by moving lower with equities on concerns about European deflation,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The cold weather is boosting demand and adding to the supportive outlook for the short term.”

Ultra low sulfur diesel for February delivery rose 6.24 cents, or 1.9 percent, to close at $3.2794 a gallon in New York. It was the highest settlement since March 16, 2012. Volume was 39 percent above the 100-day average. The more active March contract slipped 3.04 cents, or 1 percent, to settle at $2.9971.

Keystone XL

The proposed Keystone XL pipeline cleared a key hurdle today with a government study that found the project’s effect on the climate would be minimal, which supporters said meets President Barack Obama’s test for building the project.

In its final technical review, the U.S. State Department found the Canada-U.S. oil pipeline would not greatly increase carbon emissions because the oil sands in Alberta will be developed anyway, a department official said today on a call with reporters.

Implied volatility for at-the-money WTI options expiring in March was 19.2 percent up from 18.8 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 516,265 contracts at 3:33 p.m. It totaled 426,933 contracts yesterday, 16 percent lower than the three-month average. Open interest was 1.58 million contracts, the lowest level since Feb. 4.

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