Brent holds above $116 on US stocks draw; Greece risk weighs

Wednesday, 08 February 2012 10:18

SINGAPORE: Brent crude futures were steady above $116 a barrel on Wednesday, as a lift in sentiment from an unexpected fall in US crude inventories was dampened by uncertainty over Greece's ability to resolve its debt problems.

The American Petroleum Institute (API) reported a surprise drawdown of 4.5 million barrels in the week to Feb. 3, defying a consensus forecast for a 2.4 million barrels increase.

"The market was expecting a big build with many refineries expected to go into turnaround in February and March, so the numbers are a boost for prices," said Tony Nunan, a risk manager with Mitsubishi Corp in Tokyo.

Front-month Brent edged down 12 cents to $116.11 a barrel by 0301 GMT, snapping seven straight days of gains.

US March crude rose 43 cents to $98.84 a barrel, which received a further boost from an unplanned outage at a Canadian oil sands plant.

But the ongoing risk of Europe's debt crisis dragging the region into a recession and affecting oil demand continued to weigh on risk assets.

Greek political parties will try yet again on Wednesday to strike a reform deal in return for a new international rescue to avoid a chaotic default.

"There is little doubt that should Greece come to an agreement with private debt holders and agree to tough austerity measures this would be viewed favorably in risk asset markets," said Ben Le Brun, market analyst with OptionXpress in Sydney.

BRENT/WTI EASES

Brent's premium to US crude oil narrowed further below $18 a barrel, after the spread had widened to more than $20 per barrel on Tuesday, its highest since October.

Gains in the US benchmark following the API inventory data and news of the closure of plant that processes Canadian oil sands helped narrow the spread.

Brent will consolidate in a range of $115.29-$116.79 for one or two trading sessions before rising towards $118.65, while US oil will edge up to $99.59 per barrel, as it has broken a resistance at $98.61, said Reuters market analyst Wang Tao.

SUPPLY RISKS

The prospect of supply disruptions has put a floor under prices, with Iran's parliament saying on Tuesday it was ready to impose a ban on oil exports to the EU, while clashes in Nigeria are also worrying investors about potential supply problems.

On the demand side, the US government's Energy Information Administration (EIA) boosted its 2012 and 2013 forecasts for global oil demand growth, and said supply would tighten as gains in non-OPEC production lag, adding to support for oil prices.