BackBrent oil tops $118, US debt looms
Brent oil tops $118, US debt looms
PremiumLondon: Brent oil rose above $118 on Thursday as a storm heading toward the Gulf of Mexico raised the threat of supply disruption and wary traders waited to see whether the United States could break a political deadlock over its debt limit.
Brent gained 68 cents to $118.11 a barrel by 4:52pm.
US crude was up 2 cents to $97.42. The front-month contract hit a seven-session low of $96.51 earlier after data on Wednesday showed a rise in US inventories.
“The first storms of the Atlantic hurricane season have hit the headlines, reminding the market of potential supply disruptions from an expected active hurricane season," said Natalie Robertson, an analyst at ANZ.
Traders said the market was range-bound and that volumes were subdued by protracted uncertainty over the health of the world’s biggest economy and top oil user.
A vote on a bill to cut the US deficit - a necessary step before the debt ceiling can be raised to avoid a potentially catastrophic US default -- was expected to be nail-bitingly close on Thursday.
“We are now starting to see markets beginning to seize up in light of the dangerous game of chicken being played by the politicians in Washington," Edward Meir of MF Global wrote in a daily note.
Unease about the US impasse has weighed on a range of financial markets and helped to drive relatively safe-haven gold to a series of all-time highs.
RANGE-BOUND
Brent has traded in a roughly $10 range since the International Energy Agency in late June added additional supplies to the market following the failure of the Organization of the Petroleum Exporting Countries to agree to increase output.
“Producer governments continue to send the message that they are perfectly happy with prices being precisely where they are, and consumer governments continue to send the message that while they do not like the level, they very much like the lack of momentum," Barclays Capital said in a note.
Analysts and traders said the possibility of a further release from emergency stocks could cap gains over the medium term, although on Thursday, the fourth named storm of the Atlantic hurricane season provided modest price support.
The US government’s weather agency has forecast an “above normal" 2011 Atlantic hurricane season, spawning six to 10 hurricanes of which around half could become major.
At the same time, any weakening of the US dollar connected to the economy or attempts to stimulate it could also drive up the range of dollar-denominated commodities, made cheaper for holders of other currencies.
US jobless data at 6:00pm, could give new direction to foreign exchange markets.
Potentially adding to US problems, Tropical Storm Don was heading towards the Texas coast and could threaten oil infrastructure in the US Gulf of Mexico.
The IEA linked its reserves release to supply disruption because of civil war in Libya, although it has also cited concern about economic weakness.
It said it would continue to monitor the supply/demand balance and analysts say the market was factoring in the possibility of further emergency action.
“If economic growth continues to disappoint, further intervention of this sort cannot be ruled out. Other things been equal, this potentially limits the extent to which oil prices can rise aggressively from here," said Richard Batty, global investment strategist at Standard Life Investments.
He estimated $15 of the oil price reflected a risk premium because of tension in the Middle East and North Africa and a further $10 reflected the fall in the trade-weighted US dollar.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
