Singapore: Brent crude futures slipped towards $117 on Tuesday, pushed by demand growth concerns in Europe after ratings agency Moody’s downgraded six countries in the region, but fears of supply disruption helped stem the slide.
Moody’s warned it might cut the top ratings of France, Britain and Austria after downgrading Italy, Portugal, and a few other countries, weighing down Asian shares and the euro.
Tension in the Middle East worsened as Israel accused Iran and its ally, Hezbollah, of being behind two bomb attacks.
Brent March crude fell 73 cents to $117.20 a barrel by 10:30 am, reversing all the gains made in the previous session. US crude fell 39 cents to $100.52 a barrel, narrowing the difference between the two grades to less than $17 a barrel.
“At a time when the oil market has had rallies for several weeks, it’s probably a little bit of short-term nervousness of being caught on the wrong side,” said Ric Spooner, chief markets analyst at CMC Markets, referring to a sell-off by traders after the Moody’s downgrade.
Monday’s attacks targeting Israeli embassy staff in India and Georgia amplified tension with Iran. The two countries are already at loggerheads with Iran over Tehran’s nuclear programme.
Violence also spread in Syria as troops bombarded opposition strongholds, entering a 10th day of shelling and sniper fire in the city.
“Worries remain on the supply of crude in the Middle East, which should be built into Brent,” said Tony Nunan, a risk manager with Mitsubishi Corp in Tokyo. “The worsening of the situation in Iran or Syria could cause a shift in Brent prices.”
Doubts on Greece’s ability to avoid bankruptcy remained after the country admitted that it still faces a tough job in persuading the European Union and IMF on a much-needed bailout.
Brent/WTI Spread
The direction of the spread between the two benchmark crudes was likely to be judged by the volume of US crude inventory, with a weekly report from the American Petroleum Institute, one of the key indications, due later on Tuesday.
US crude could strengthen further against Brent after the spread between the two benchmarks narrowed 35 cents to $16.67 a barrel by 10:15 am, down 2.06% from Monday’s settlement.
“What is driving the spread is the relative outlook in the US economy improving versus Europe, which is pushing the demand outlook up, and narrowing the spread,” said Spooner.
The White House has declared its budget prediction of 2012 unemployment of 8.9% as “stale,” after an improving labour market lowered unemployment to 8.3% in January.
US oil will rise to $102.06 per barrel as it has cleared a resistance at $100.25, while Brent will retrace further to $116.29, as a correction that started at the 9 February high of $118.49 has not been completed, Reuters market analyst Wang Tao said.
Nunan, however, expected the US benchmark to weaken due to high stockpiles in the world’s biggest oil consumer.
“I expect WTI to weaken down to $95 a barrel and Brent oil to stay where it is,” he said. “The spread should be wider as stocks are high in the United States and Brent is affected by geopolitical risks.”
US crude oil inventories rose last week for the fourth straight time on higher imports and as refinery utilization dipped, a preliminary Reuters poll of analysts showed on Monday.
On average, the poll showed that domestic crude stockpiles added 1.9 million barrels in the week to 10 February, with six out of seven analysts predicting a build.