19 February 2014, News Wires – Brent crude held above $110 a barrel on Wednesday, underpinned by geopolitical concerns in Africa and Venezuela, while US oil touched its highest in four months as stockpiles are forecast to fall on winter demand and new pipeline capacity.
A frigid winter in North America has sapped heating oil supplies in the US and buoyed prices. Weekly inventories data from the US due in the next two days should show a 1.8 million barrels drop in distillates stocks, according to a Reuters poll.
US crude futures for March delivery touched an intraday high of $103.14 a barrel, not far off $103.25 in the previous session, the loftiest since 10 October. The contract, which expires on Thursday, was at $102.71 a barrel, up 28 cents early on Wednesday.
Brent crude edged down 28 cents to $110.18, after settling on Tuesday at the highest level this year.
“WTI just exploded,” said Tony Nunan, a risk manager at Mitsubishi Corp. “It’s a combination of the unexpected severe winter and that drawdown at Cushing that caused us to go this high.”
Crude inventories at Cushing, Oklahoma, the delivery point for West Texas Intermediate (WTI) contracts, have fallen by 1.4 million barrels since last Tuesday, traders said, citing a report from industry intelligence provider Genscape. TransCanada’s Keystone new south pipeline is diverting crude from the US Midwest to the gulf coast.
This has narrowed Brent’s premium to WTI by more than $6 to about $8 a barrel. The spread is expected to stay volatile, Nunan said, as the market tries to strike a balance between extreme winter conditions in the US which could last for another month, supporting oil prices, versus the start of seasonal refinery maintenance that could reduce crude demand.
The American Petroleum Institute’s weekly petroleum stocks report will be delayed by one day to later on Wednesday while the Energy Information Administration’s report will be released a day later.
The geopolitical risk premium in Brent rose as internal strife in South Sudan and Libya disrupted oil supply while protests in Venezuela raised concerns.
“Venezuelan production is way down from its peak and now with social unrest it cannot be good for production,” Nunan said. “It’s just another unstable Opec producer which causes a geopolitical risk premium to be built into prices.”
In Libya, oil output was down at 375,000 barrels per day on Tuesday with protests continuing to affect a pipeline from the major El Sharara field, a National Oil Corporation spokesman said. Libyan militias stepped up pressure on Tuesday, demanding that the country’s parliament hand over power immediately.
South Sudanese rebels said they had seized control of the capital of oil-producing Upper Nile state on Tuesday, an assault that the government said breached a ceasefire and which casts doubt over planned peace talks.