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By Bloomberg

The smallest discount for U.S. crude to global prices in two months is set to widen as American production continues climbing, according to BNP Paribas SA and Commerzbank AG.

Crude in New York traded Tuesday at $5.05 a barrel more than the global benchmark, the smallest gap since Feb. 9. The spread is narrowing amid signs U.S. supply growth is slowing while output elsewhere -- from Libya, Iraq and potentially Iran -- is increasing, according to Petromatrix GmbH, a consultant. The move has been premature because U.S. output hasn’t slowed enough, Commerzbank predicted. Supply growth outside the U.S. that has depressed Brent is fragile, BNP Paribas said.

“It is hard to justify the recent move in the spread,” Harry Tchilinguirian, head of commodities strategy at BNP Paribas in London, said by e-mail. “At some point, the market will have to face up to the U.S. fundamentals,” while “Iranian oil is not coming back anytime soon this year in any significant quantity.”

The discount on West Texas Intermediate futures, the U.S. reference price, versus North Sea Brent had been as wide as $10 a barrel as recently as March 19.

Gap Shrinks

“Expectations of lower U.S. production on the WTI side, expectations of continued ample seaborne crude availabilities on the Brent side” have driven the convergence between the two grades, Olivier Jakob, managing director at Petromatrix, said by e-mail from Zug, Switzerland.

The number of U.S. oil rigs in use is the lowest since 2011, national crude production dropped for the first time since January and the growth in stockpiles at the country’s storage hub may be starting to slow. Output in OPEC nations Iraq and Libya recovered last month, data compiled by Bloomberg show, while on April 2 Iran reached a preliminary deal with world powers that works toward easing sanctions on its oil exports.

U.S. crude production dropped 36,000 barrels a day to 9.39 million in the week ended March 27, the first decline since January, according to the Energy Information Administration. That’s down from 9.42 million on March 20, the most in weekly estimates that started in January 1983. The U.S. oil rig count fell to 802 in the week to April 3, the lowest level since 2011 and down from as high as 1,609 on Oct. 10, according to Baker Hughes Inc.

Iran Deal

Iran and world powers took their biggest step toward ending a decade-old nuclear standoff on April 2, saying they agreed on the main outlines of an accord after more than a week of talks. The country could raise exports by 700,000 barrels a day by mid-2016 if a full agreement is reached, Francisco Blanch, head of commodities research at Bank of America Corp. said in a report.

Negotiators aiming for a final accord by the end of June may yet fail to reach a comprehensive agreement, and even if a deal is secured Iranian output gains may be limited, BNP Paribas predicts.

The EIA, the statistical unit of the U.S. Energy Department, will release weekly data on inventories and production at 10:30 a.m. in Washington today.

Crude stockpiles probably gained by 3.25 million barrels last week, a Bloomberg survey showed before the EIA’s report. Industry data on Tuesday showed an increase of 12.2 million.

“U.S. inventories continue to soar relentlessly,” Carsten Fritsch, an analyst at Commerzbank in Frankfurt, said by e-mail. “The narrowing in the spread happened much sooner than expected and warranted. Fundamentals still point to a much bigger spread, maybe even double-digits.”