Singapore: Brent crude futures slipped below $112 a barrel on Wednesday after industry data showed US crude inventories fell less than forecast last week and as the dollar rebounded against the euro.
The American Petroleum Institute (API) said crude inventories fell 860,000 barrels for the week ended 20 May, lagging expectations of a 1.3 million-barrel draw. Gasoline stocks rose 2.4 million barrels a week before the Memorial Day weekend, the official start of the summer driving season. Analysts had expected a 300,000-barrel build.
“The inventory numbers are driving prices lower. The rise in gasoline stocks is significant coming just before Memorial Day,” said Michel Lo, a Hong Kong-based analyst with Nomura International. “If the EIA numbers show a rise as well that will put more pressure on prices.”
Brent crude for July fell 77 cents a barrel to $111.76 a barrel by 10:14am, after sliding as low as $111.50. US crude was down 76 cents a barrel at $98.83, and fell as low as $98.50.
As the US driving season approaches, traders have been closely watching the steady drawdown of gasoline stockpiles for any indication of a slowdown in demand because of the recent surge in prices at the world’s biggest oil consumer.
Data from the US Energy Information Administration (EIA) showing 11 successive weekly draws in the motor fuel up to early May had helped to boost oil prices. The EIA will issue its latest data later on Wednesday.
A stronger dollar was also depressing prices, as the greenback bounced back against the euro and ticked up versus a basket of currencies amid fears about Greece’s finances and Europe’s spreading debt crisis. Euro zone debt concerns drove oil prices down more than 2% on Monday.
Europe’s policy options to avert a Greek default are narrowing fast after the ECB and ratings agencies warned against even voluntary debt rescheduling and Athens highlighted its urgent need for more EU cash.
Adding to the weakness was the latest numbers from Japan, the world’s third-largest oil consumer, where demand remained weak following the 11 March earthquake, and crude imports plunged 14% in April from a year earlier in its sharpest fall since October 2009.
Japanese exports tumbled in April from a year earlier as expected, dragged down by a slump in carmakers’ output after the 11 March earthquake, but analysts see the first signs that the economy is bottoming out as manufacturers continue to restore production capacity.
Glencore International chief executive Ivan Glasenberg said on Wednesday the recent fall in commodity prices has taken the speculative froth out of the market, but commodities fundamentals are still strong amid tight supplies and buoyant demand from emerging markets.
The comments from commodities giant Glencore came a day after Goldman Sachs said they were “structurally bullish” as fuel demand growth will sap global inventories and strain OPEC’s spare oil output capacity. Morgan Stanley also raised its Brent crude price forecast.
Also supporting the market was comments on Tuesday by US Federal Reserve officials that the central bank would not likely change its policy immediately after the end of its $600 billion bond-buying program next month, but would stay on hold “for a couple of meeting”.
Commodity markets have been preparing for the end of the Fed’s quantitative initiative, or QE2, which was designed to stimulate the economy and has helped prop up prices.
Although prices have already been declining in anticipation, the end of quantitative easing initiative, or QE2, will likely leave markets more vulnerable to issues that investors have overlooked as long as the Fed was printing money at a record pace, analysts say.
Elsewhere, the conflict in Libya that has helped put a floor on oil prices showed no signs of letting up, as Nato warplanes hammered Moammar Gadhafi’s compound with their heaviest air strikes yet on Tuesday after the United States said the Libyan leader would “inevitably” be forced from power.
Oil prices also showed little immediate reaction to news the United States announced new sanctions on Opec-member Venezuela’s state oil company PDVSA and six other smaller oil and shipping companies for trading with Iran.
The sanctions are narrowly targeted and will not affect PDVSA’s sales of oil to the United States or the activities of its subsidiaries including US-based CITGO.
US regulators launched one of the biggest ever crackdowns on oil price manipulation on Tuesday, suing two well-known traders and two trading firms owned by Norwegian billionaire John Fredriksen for allegedly making $50 million by squeezing markets in 2008.
The Commodity Futures Trading Commission (CFTC) said traders James Dyer of Oklahoma’s Parnon Energy, and Nick Wildgoose of Europe-based Arcadia Energy, amassed large physical positions at a key US trading hub to create the impression of tight supplies that would boost oil prices.