16 January 2014, News Wires – Brent crude fell below $107 a barrel on Thursday, as expectations of more supply from the Middle East and North Africa outweighed a large drop in US crude stockpiles.
Major world powers and Iran continued to move ahead on an interim deal that eases some sanctions on Tehran in exchange for curbs on its nuclear programme.
“The Iran situation is a bearish factor for Brent. But still a lot can go wrong and Iran could continue to support the market in the long term,” said Tony Nunan, oil risk manager at Mitsubishi in Tokyo.
Brent crude for February delivery was down 40 cents at $106.73 per barrel early on Thursday, after settling 74 cents lower. The contract expires Thursday.
US crude rose 5 cents at $94.22, after ending up for a third straight day on Wednesday, $1.58 higher. The February contract expires next Tuesday following a long US holiday weekend.
Oil was supported by data showing US crude inventories shed 7.7 million barrels last week, compared with estimates of 600,000 barrels, the largest seven-week fall since records began.
The drop extended this week’s gains in US oil. Both benchmarks had trended downwards since the end of December in part due to expectations the Federal Reserve could curb its commodity-friendly monetary stimulus programme.
“I don’t think the rebound (in oil prices) is sustainable,” said Nunan. “Both contracts will flip into March delivery in the coming days, which is when the refinery turnaround season starts. So refining demand should drop and inventory draws reverse.”
Diplomats from Iran and a group of world powers are likely to begin talks in February on a final settlement to a long dispute over the Islamic republic’s nuclear programme. Oil prices have been supported by Western sanctions against Iran.
Under a preliminary accord that goes into effect on 20 January, Iran’s oil exports are to hold at current levels of about 1 million barrels per day.
The resumption of oil production at the southern El Sharara oilfield in Libya last week also weighed on Brent, although the main issue is still when the blockade at Libya’s eastern oil ports will end.
On Wednesday, Libyan authorities were in negotiations with protesters threatening to restart a blockade of El Sharara, where protests cut output for two months last year.
Losses in oil prices were capped by further evidence of strength in the US economy. US producer prices rose the most in six months in December, while a gauge of manufacturing in New York state jumped to its highest level in 20 months in January.
The World Bank also painted a rosier picture of the world economy, raising its forecast for global growth for the first time in three years.
Economic growth gives investors more reason to take on risky assets like commodities, with the positive data also likely to spur the Fed to forge ahead with curbing stimulus further.
“People feel more confident about the economy at the moment, and that’s supportive for oil. But the reality is there’s a lot of crude around,” said Nunan, referring to a continued surge in US oil output.
