Singapore: Brent crude fell on Friday, after sharp gains a day earlier prompted investors to book profits ahead of a key US jobs report that will provide insight into the pace of economic recovery of the world’s biggest oil consumer.
ICE Brent crude was down 35 cents at $118.24 a barrel by 11:59am, after falling as low as $117.62 earlier. US crude was at $98.67 a barrel, down 1 cent. Oil prices are headed for their second straight weekly gain, with Brent poised to rise more than 5% this week.
Brent jumped on Thursday by the biggest percentage in two months, hitting a three-week high as US data on jobless claims and retail sales came in stronger than expected.
That prompted several economists to raise forecasts for the government’s non-farm payrolls count due later on Friday.
“Traders usually turn cautious before a key data release like non-farm payrolls. The market needs a consistent flow of good news to support prices,” said Benson Wang, an analyst with Commodity Brokers in Sydney.
“There is still uncertainty over whether the IEA will release more oil and whether China really has inflation under control.”
Oil prices have rebounded about 10 percent after plunging to four-month lows following the International Energy Agency’s (IEA) shock announcement on 23 June that member nations would release 60 million barrels of oil reserves.
The IEA said it would consider later this month whether or not to release more reserves, but does not see the program extending for longer than a month or two.
China this week raised interest rates on for the third time this year in an attempt to tame rising inflation, raising hopes that the government’s monetary tightening cycle may be nearing its end.
The country’s annual inflation in June is expected to hit a near three-year peak of 6.3% according to a Reuters poll of 28 economists.
US crude and oil product stocks posted modest declines last week as a boost in refinery utilization was offset by a rise in crude imports, US Energy Information Administration data showed Thursday.
Crude inventories fell 889,000 barrels to 358.6 million barrels in the week to 1 July, below average forecasts of a 2.3 million barrel drawdown.
Gasoline stocks unexpectedly fell 634,000 barrels to 212.5 million barrels, versus analyst projections for a 100,000-barrel build.
Distillates, which include heating oil and diesel, likewise posted a surprise 191,000-barrel fall to 142.05 million barrels, compared with a forecast rise of 700,000 barrels.
JP Morgan became the latest bank to raise its oil price forecasts, citing the impact of the IEA decision to release strategic crude stocks together with shifts in Middle East Gulf crude oil exports.
“Politics aside, the main reason we can see for the precise timing of the IEA stock release was that it coincided with clear indications from tanker traffic data that Opec output would fall short of prior pledges,” the bank said in a report dated Thursday.
“As such, it is difficult to conclude anything except that there is little or no spare capacity in the oil market.”
Investment banks Goldman Sachs , Morgan Stanley and Barclays Capital had also this week published upbeat forecasts on the outlook for oil fundamentals this week, with similar warnings of shrinking spare capacity.
In the short term, US crude’s bullish target of $99.68 remains intact, while Brent oil is expected to rise to $121.47, according to Reuters technical analyst Wang Tao.
The spread between the two benchmarks widened by $3 to top $20 a barrel on Thursday, the widest since 20 June, as production problems plagued North Sea oil supplies. It was trading at $19.41 a barrel by 8:03am up 34 cents.