04 September 2014 – Brent crude slipped towards $102 a barrel on Thursday, reversing some of the sharp overnight gains, as US industry data showed fuel stocks rose last week in the world’s biggest oil consumer, raising fresh doubts on the strength of demand.
Oil futures on both sides of the Atlantic have seen wide swings this week, as the US dollar has gyrated. Brent hit a 16-month low on Tuesday, before bouncing back $2.43 yesterday as the prospect of peace talks over Ukraine and strong US economic data raised demand expectations.
Brent crude for October delivery fell 57 cents to $102.20 a barrel early on Thursday. US crude was down 45 cents at $95.09 a barrel, after settling $2.66 higher on Wednesday.
“The size of swings in the dollar is a source of volatility for commodities,” said Ric Spooner, chief analyst at CMC Markets in Sydney.
The US currency rose to a 14-month peak against a basket of currencies this week, but has since come off. A stronger greenback makes it more expensive for importing countries to buy dollar-denominated oil.
“The market is getting serious about adjusting for a tightening of US interest rates, and this process has the ability to take oil prices lower,” Spooner said.
“This suggests that against a background of a very well-supplied market and a period of seasonal weakness lower prices are possible.”
Oil prices pulled lower as data from industry group American Petroleum Institute (API) – released after Wednesday’s session closed – showed fuel stocks rose last week.
Gasoline stocks rose by 362,000 barrels last week, compared with analysts’ expectations in a Reuters poll for a 1.3 million-barrel decline. Distillate fuels stockpiles, which include diesel and heating oil, rose by 385,000 barrels, compared with expectations for a 500,000-barrel drop, the API data showed.
US crude inventories fell only 545,000 barrels to 361 million last week as refinery capacity utilisation fell 0.5 percentage points to 93.2%.
The more closely watched update from the government’s Energy Information Administration is due later on Thursday. It is delayed by one day due to a US holiday last Monday.
In bullish signals for oil demand, new orders for US factory goods posted a record gain in July and auto sales last month accelerated to their highest level in 8.5 years.
Geopolitical tension in key oil producing regions also continued to represent potential support for oil prices.
Libya’s oil output has risen to 725,000 barrels a day, more than six times the level two months ago, despite an uncertain political situation. But a group of rebels campaigning for autonomy in eastern Libya rejected the parliament set up by another armed group in Tripoli, although it agreed to honour a deal to keep major oil ports open.
“The market has now stripped out most of the geopolitical risk premium, which makes it vulnerable to sudden changes in the world’s hotspots,” Spooner of CMC Markets said.
In an episode that may heighten concern about the vulnerability of Saudi Arabian energy infrastructure, a small fire broke out on a gas pipeline in eastern Saudi Arabia this week after assailants shot at a police patrol.