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Markets

Oil up near $113, market awaits US data

LONDON : Oil traded up near $113 on Thursday buoyed by European equities, but the upside was capped as the market awaite
15 Sep 2011

 LONDON: Oil traded up near $113 on Thursday buoyed by European equities, but the upside was capped as the market awaited a bundle of data from the United States for an update on the progress of the economic recovery.

Brent crude for October, which expires today, was up 65 cents at $113.05. by 0845 GMT. The November contract was up 57 cents at $110.22.

US crude slipped 50 cents to $88.41, while the dollar was down 0.1 percent against a basket of currencies. at 0830 GMT.

The oil market is taking some support from European stocks , which rose on Thursday on signs that European policymakers are taking tentative steps to tackle the crippling debt crisis.

But analysts said the upside in crude would be fairly limited until the Eurozone crisis plays out. "Oil is not really doing anything," said Michael Hewson, an analyst at CMC Markets.

"The oil price is basically reflecting moves in equity markets but it is near the top of its recent range so it will take something exceptional to push it beyond that."

"Neither is the weaker dollar providing much of a support," said Eugen Weinberg, an analyst at Commerzbank in Frankfurt.

"The market at some point will have to come to the conclusion that the growth prospects which have been priced in to Brent are unrealistic and the US Federal Reserve meeting next week is unlikely to bring a new round of quantitative easing in the form of direct Treasury purchases."

Europe's ongoing debt crisis is chipping away at confidence and capping any oil rally. The continent's finance ministers have been warned confidentially of the danger of a renewed credit crunch as a "systemic" crisis in euro zone sovereign debt spills over to banks.

Swiss bank UBS came under pressure after it admitted unauthorised trading in its investment bank had incurred a loss of some $2 billion

World Bank President Robert Zoellick said on Wednesday the world had entered a new economic danger zone and Europe, Japan and the United States all needed to make hard decisions to avoid dragging down the global economy.

Oil traders are looking to a bundle of data coming from the Unites States later today, including August consumer prices, the Philadelphia Fed and Empire Manufacturing surveys, and the regular weekly jobless claims.

Weinberg said that the Philly Fed had been a massive underperformer recently and this had been taken by many as a sign of an upcoming recession in the US.

"There is some tension in the market to look at that. The retail sales data that came yesterday also failed to surprise on the upside. It was rather disappointing," he said.

RISING FUEL INVENTORIES

Reflecting slowing growth, US total oil product demand over the past four weeks fell 0.9 percent from a year earlier, while gasoline use over the summer declined to an eight-year low, the Energy Information Administration said on Wednesday.

Traders paid little attention to the biggest weekly drop in crude stockpiles this year, a 6.7-million-barrel decline, which came on the back of disruptions caused by Tropical Storm Lee. That left inventories at their lowest level since February.

Libya will begin exporting crude oil from the eastern port of Tobruk within 10 days and could be producing 1 million barrels per day (bpd) within six months, the chairman of the National Oil Corporation (NOC) said.

Traders and analysts warned that prices could be more volatile today given Brent's October expiry as the liquidity is all in the new contract. "My suspicion is that November will move up when October goes off the board," said Christopher Bellew, a trader at Jefferies Bache.

Brent's premium over US crude benchmark West Texas Intermediate (WTI) was little changed at about $24.27 a barrel, down from a record above $27 on Sept. 6 on prospects of increasing production from Libya after Muammar Gaddafi's government was overthrown.

 

Copyright Reuters, 2011