London: Oil slipped on Thursday as global markets dropped on government debt worries but held firmly above $63 a barrel as Opec met in Vienna to discuss the group’s oil output and what price the world could afford to pay.
US crude oil for July delivery was two cents up at $63.47 a barrel by 3:00pm. The contract settled $1.00 higher at $63.45 on Wednesday, after having touched $63.82, its highest level since mid-November.
London Brent crude <LCOc1 shed seven to $62.43.
Oil has climbed back from a low of $32.40 last December to a six-month high above $63 on Wednesday, after Saudi Arabia’s Oil Minister Ali al-Naimi told reporters in Vienna the world was ready to cope with a barrel price range of $75-$80.
“The price rise is a function of optimism better things are coming in the future,” Naimi told reporters.
Naimi said OPEC, which has already agreed to cut 4.2 million barrels per day of oil from the market in a bid to support prices, did not need to change its output policy.
But concerns about the debt burden facing countries trying to spend their way out of the economic downturn scared investors on Thursday in spite of optimism from President Barack Obama that the US economy was past the worst.
“It’s safe to say we have stepped back from the brink,” Obama told a fundraiser in Beverly Hills. “There is some calm that didn’t exist before.”
European shares opened lower on Thursday, tracking a decline on Wall Street, after a spike in Treasury yields triggered a sell off in equity markets.
Analysts said oil’s recent highs have followed resurgent global equity markets in spite of weak underlying fundamentals of excess supply and poor demand for refined petroleum products.
“In the near term, oil will likely retain its high level of correlation in daily return with equities, but equally with (foreign exchange) as long as oil is kept off the market in storage,” said BNP Paribas’ senior oil analyst Harry Tchilinguirian.
Industry officials and analysts estimate a range of 100 million to 130 million barrels of crude oil stored at sea in 50 to 53 vessels, as sellers profit on oil for prompt delivery being cheaper than for future delivery.
The American Petroleum Institute said in its report after oil markets closed on Wednesday that crude stocks fell 2.8 million barrels to 364.7 million barrels last week.
“I think the stark draw in the APIs during the night has stopped oil from going lower,” Bache Commoditiews broker Christopher Bellew said.