06 February 2014, News Wires – Brent crude held steady above $106 a barrel on Thursday as worries over global economic growth dented the demand outlook, with its premium to US crude continuing to narrow as more cold weather hit the United States.
The oil market has mostly escaped the recent selloff in risky assets, which was sparked by emerging markets turmoil and a mixed picture on global economic growth.
“Commodities have largely been unaffected by the emerging market turmoil so far. Industrial metals are likely to be most affected, while the energy market is getting support from the fact that the global economy presumably is back on the right track,” said Mark Keenan, head of commodities research in Asia at Societe Generale.
Brent crude was trading 5 cents higher at $106.30 per barrel early on Thursday, having settled up 47 cents the session before.
US crude rose 18 cents to $97.56 a barrel, after closing up 19 cents. The benchmark was supported as severe snow and ice storms in the Northeastern states boosted demand for heating fuels. The storms had left almost a million homes and businesses without power on Wednesday.
US stocks of distillates fell 2.4 million barrels last week – more than expected – and inventories of the fuels on the East Coast declined to their lowest level since April 2003 due to the continued cold spell, data from the Energy Information Administration (EIA) showed.
“Recent cold weather has increased demand of distillates in the United States, and that has kept the petroleum complex elevated,” said Keenan.
Demand for jet fuel, however, was hit with 2880 flights cancelled on Wednesday throughout the United States.
Oil markets were also supported by a pickup in the US services sector in January, with steady strength in private-sector hiring, suggesting the winter weather that socked the country over the few several weeks had a limited effect on the economy.
Crude stocks at Cushing fell 1.6 million barrels to 40.3 million barrels last week, reflecting the start-up last month of TransCanada’s 700,000 barrel per day Gulf Coast pipeline, which had been expected to ease a glut at the Oklahoma storage hub.
Support for US crude narrowed the gap to the international benchmark to $8.74 per barrel on Thursday. The spread touched $7.94 per barrel on Wednesday, the narrowest since 10 October, before closing at $8.87 per barrel.
The narrowing gap comes as many investors have pulled out of heavy speculation in the spread.
“We have seen a clear step back from the speculative community, including hedge funds, simply because they lost so much money on trading the spread. As a result, the spread is now more driven by fundamental factors, and this will keep volatility in the spread lower,” said Keenan, who expects the spread to narrow further.
Elsewhere, Syria on Wednesday missed a deadline to hand over all the toxic materials it declared to the world’s chemical weapons watchdog, putting the programme several weeks behind schedule and jeopardising a final 30 June deadline.
Investors will also keep an eye on the outcome of Thursday’s European Central Bank policy meeting and whether policymakers would consider further stimulus to help a still-fragile euro zone economy.