NEW YORK, Sept 16 — Oil rose in New York as West Texas Intermediate crude narrowed its discount to Brent to the least in eight months amid increasing North Sea deliveries and falling stockpiles at the largest US storage hub.

The spread between WTI and Brent shrank to US$1.55 (RM6.60), the least since Jan 22. Crude stockpiles at Cushing, Oklahoma, delivery point for WTI traded in New York, fell one million barrels last week in a Bloomberg forecast.

Output of North Sea grades will reach the highest level in more than three years in October, according to loading programmes compiled by Bloomberg. Front-month Brent contracts traded near their deepest discount to later- dated contracts since June, a sign of intensifying concern about the supply glut.

Oil has slumped about 30 per cent from its 2015 peak in May amid signs excess supply will persist. Prices reached six-year lows in August as a Chinese slowdown raised the prospect of lower demand. Goldman Sachs Group Inc said last week that the excess is bigger than it initially anticipated and crude could fall as low as US$20 a barrel.

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“The narrowing spread is a reflection of the surprisingly high volume of output from the North Sea,” Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by phone. “Falling Cushing stocks are also putting pressure on the spread.”

Growing contango

WTI for October delivery increased 73 cents, or 1.7 per cent, to US$44.73 a barrel at 11.39am on the New York Mercantile Exchange. The volume of all futures traded was 11 percent above the 100-day average for the time of day.

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Brent for October settlement, which expires today, rose five cents to US$46.42 a barrel on the London-based ICE Futures Europe exchange. The more-active November contract slipped 4 cents to US$47.31. The spread — or contango — on front-month Brent compared with the next-month contract widened to as much as US$1.17 a barrel.

“It signifies a material oversupply,” Seth Kleinman, head of energy strategy at Citigroup Inc in London, said by phone of the expanding spread. “US production is not going down fast enough given the continuous growth we seem to be having from OPEC.”

Rising supplies

US crude supplies probably rose by 1.75 million barrels last week, adding to stockpiles already 100 million barrels above the seasonal norm, according to a Bloomberg survey. The projected US stockpile gain coincides with a drop in refiners’ operating rates as gasoline demand slips with the end of summer. Cushing supplies fell in the last two weekly reports from the Energy Information Administration while the nationwide total climbed.

Investors also await tomorrow’s Federal Reserve announcement on interest rates. The odds of an increase this week held near 30 per cent, down from more than 50 per cent before China roiled markets with its currency devaluation last month.

“We’re bouncing against the bottom ahead of Thursday’s Fed decision and Wednesday’s EIA data,” Yawger said. “The impact of the overall build in supplies is tempered by the declines at Cushing.”

Increasing supplies from OPEC members such as Iraq are adding to the surplus, Citigroup’s Kleinman said. Iraq plans to increase exports of crude from its southern region by 26 percent next month, with a combined 81 cargoes of Basrah Light and Basrah Heavy grade crudes totaling 114 million barrels, according to a loading program obtained by Bloomberg News.

The Organisation of Petroleum Exporting Countries trimmed its estimates for growth in output from outside the group next year by 110,000 barrels a day in its monthly market report. Supplies from non-OPEC nations such as the US, Canada, Russia and Brazil will increase by 160,000 barrels a day to 57.6 million in 2016, the group’s Vienna-based secretariat said Monday. — Bloomberg