Brent stays above $116 on supply woes

16 August 2012, Newswires – Brent crude rose slightly on Thursday, staying near a three-month high above $116 on concerns over disruptions to supply from the Middle East and a steeper-than-expected drawdown in oil stocks in the world’s top consumer – the US.

The European benchmark has risen more than a third in less than two months from the low for the year of $88.49, as worries about a conflict over Iran’s disputed nuclear programme escalate and as investors lock in positions on hopes of more stimulus measures from central banks.

Data on Wednesday showing a steep drop in US stocks exacerbated global supply worries.

Brent had gained 7 cents to $116.32 a barrel by Thursday morning, after ending $2.22 up at the highest settlement since 2 May.

US crude gained 11 cents to $94.44, after rising 90 cents to its highest settlement since 14 May.

“The market is reacting to the US inventory report because it showed an unexpectedly large drop,” Victor Shum, a senior partner at oil consultancy Purvin & Gertz, told Reuters.

“Added to that is the ongoing geopolitical issue in the Middle East with recent comments suggesting a conflict.”

But the steep gains since the low touched on 22 June may have been excessive, putting prices at risk of a correction, Shum said, adding that the US contract may slip to $90 a barrel, with Brent commanding a $15 premium.

“Expectations of central banks doing another round of quantitative easing have contributed to some of the current strength in prices. That’s put oil in an overbought territory because we have not seen any actual move in that direction – it has just been talk. I would say: show me the money first,” Shum said.

Reflecting the deepening crisis in Middle East, the Organisation of Islamic Cooperation suspended Syria’s membership early on Thursday at a summit of Muslim leaders in Mecca, citing President Bashar al-Assad’s violent suppression of the Syrian revolt.

US crude stockpiles fell more than expected last week, slipping 3.7 million barrels to 366.16 million barrels in the week to 10 August despite a modest rise in crude imports, the Energy Information Administration (EIA) reported.

Analysts polled by Reuters had forecast a drop of 1.7 million barrels.

Inventories of refined products were mixed, with gasoline stocks down 2.37 million barrels to 203.7 million barrels, against an expectation of a draw of 1.5 million barrels.

Distillates, which include diesel and heating oil, rose 677,000 barrels to 124.22 million, versus a forecast decline of 200,000 barrels, the EIA said.

Investors are also looking out for further indications on monetary stimulus measures in the US.

Consumer prices in the country were flat in July for a second straight month and the year-on-year increase was the smallest in more than one and a half years, giving the Federal Reserve room to tackle high unemployment.

However, other reports on Wednesday showed home-builder sentiment in August hit its highest level in more than five years, while industrial production rose in July.

Richard Fisher, the president of the Dallas Federal Reserve Bank, repeated his view that more monetary policy easing would not help boost employment and could even hurt the US economy as it could increase market uncertainty.

Brent will gain more to $117.96 per barrel, as indicated by a Fibonacci retracement analysis, while US oil is expected to break resistance at $95.03 per barrel and rise towards $96.87, according to Reuters technical analyst Wang Tao.

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