Singapore: Brent crude slipped for a second day on Thursday, staying below $112 on concerns about demand growth, as France and Germany clash over the role the European Central Bank should adopt to rein in the region’s sovereign debt crisis.
As the outlook for Europe worsened, investors turned their attention to the world’s top oil consumer, the United States, for clues to demand outlook, following a series of positive economic numbers. The US benchmark on Wednesday closed above $100 for the first time since June, on news of a critical pipeline reversal that will help ease a glut in the Midwest.
Brent crude slipped 29 cents a barrel to $111.59 by 12:15 pm, recouping some losses after falling as low as $110.58. US crude rose 6 cents to $102.65, extending gains after the contract surged more than $3 in the previous session in the most active trading since Libya’s unrest in February.
“We are beginning to see a decoupling between the United States and Europe because of the recent series of positive economic data,” said Tetsu Emori, a fund manager at Astmax Co Ltd in Tokyo. “Earlier talk was about global demand, but it is now more about US demand as that economy is getting better, and the pipeline news has helped.”
Enbridge Inc and TransCanada Corp have raced forward with new pipeline plans in the fierce battle to unclog a year-long US oil bottleneck, which could quickly end an unprecedented distortion in crude markets.
After buying ConocoPhillips’ stake in the 350,000 barrel-per-day Seaway pipeline for $1.15 billion, Enbridge and Enterprise Products Partners said they planned to reverse the line’s flow to send crude locked up at the Cushing, Oklahoma, oil hub to the Texas coast.
On the economic front, industrial output in the world’s biggest economy rebounded strongly, while consumer prices fell in October for the first time in four months, adding to the recent series of positive numbers.
Data showing a slide in crude oil inventories in the United States also helped support prices. Crude stockpiles fell 1.1 million barrels, down for a second straight week, while distillate supplies, which include heating oil and diesel fuel, dropped for the seventh consecutive week.
Spread, Price Outlook
The strength of the US benchmark may pare the price difference with the European benchmark Brent to about $5-$6 a barrel by the end of the year, Emori said, compared with more than $28 touched in October.
His views were echoed by JP Morgan, which sees the spread narrowing to $5 and $3 per barrel in 2012 and 2013, respectively.
“In our view, WTI should not have traded at a severe discount to Brent or any other benchmark for most parts of this year in any case,” Barclays Capital analysts led by Paul Horsnell and Amrita Sen said in a report. They also expect the spread to average $5 in 2012.
In Europe, France and Germany, the region’s two key powers, have stepped up their war of words over whether the European Central Bank should intervene more forcefully to halt the euro zone’s debt crisis after modest bond purchases failed to calm markets.
Concerns over Europe’s ability to stop the sovereign debt crisis from spinning out of control pushed Asian shares lower. Base metals also fell, while gold edged lower. The dollar got a boost as investors favoured the traditional safe haven, pushing the greenback up 0.13% against a basket of currencies, while the euro slumped to a five-week low.