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Business News/ Opinion / Online-views/  Oil steady after US crude stocks drop, Canada outage
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Oil steady after US crude stocks drop, Canada outage

Oil steady after US crude stocks drop, Canada outage

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Singapore: Oil held steady on Thursday after an unexpected drop in crude inventories in the United States helped prices rebound while wildfires in Alberta threatened to cut more supply from Canada.

Oil has undergone a severe correction in the past two weeks and prices are likely to remain volatile on concerns about the economic recovery in the United States and unresolved sovereign debt issues in the euro zone.

ICE Brent for July delivery edged down 3 cents to $112.27 a barrel by 11:24am, after rising more than $2 the previous day, above the 100-day moving average. Front-month Brent prices have tumbled around 10 percent since the start of May.

US crude for June delivery fell 19 cents to $99.91 a barrel.

“The EIA data was very unexpected as US crude inventories have been rising. It gave prices a bit of a kick-along," said Ben Le Brun, a Sydney-based markets analyst at CMC Markets.

Crude inventories in the United States dropped unexpectedly as refinery utilisation rates rose while imports fell. Stocks at Cushing, Oklahoma, the delivery point for NYMEX contracts, slid 1.6 million barrels, data from the Energy Information Administration showed late Wednesday.

Wildfires in Alberta threatened to cut more supply from neighbouring Canada. The fires could more than double its output cuts over the next few days after shutting in close to 50,000 barrels per day of production on Tuesday.

The shutdowns had yet to move prices for heavy crude, but markets sources cautioned that lengthy outages could tighten supplies.

The market is also keeping track of when the Federal Reserve will start to raise interest rates, a move that will tighten liquidity, curb consumers’ spending power and reduce speculative buying in markets.

The Fed’s rate-setting panel released its minutes on Wednesday, showing that most officials prefer to raise rock-bottom interest rates before selling assets when the time comes to tighten policy.

But the minutes also stressed that the April discussion did not indicate the Fed was ready to start tightening policy any time soon. Money market futures are still not fully pricing in a rate hike for more than a year from now.

“It is going to be a gradual and transparent process. The Fed is not going to pull the rug out from underneath everyone," Le Brun said.

ECONOMIC RECOVERY

However, oil prices are expected to remain volatile as weak economic data from the United States and the debt crisis in the euro zone fuelled concerns about demand, as investors worry that debt-laden Greece and Portugal may drag down other economies.

The IMF warned Greece on Wednesday that it would fail to shore up its finances unless it redoubled reform efforts, and euro zone officials dismissed suggestions that a mild debt restructuring might help.

Investors will scour data from the United States, such as the weekly unemployment claims due to be released later on Thursday, for indications of its economic health.

US factory output slipped for the first time in 10 months in April as a shortage of parts from Japan crimped activity and home building slumped, showing the economy got off to a weak start in the second quarter.

“Economic data in the United States is starting to soften a little bit so it’s not going to have a good impact on oil prices," Le Brun said.

Oil investors may also be not as optimistic as before.

“In the options market, the $70 put is the most actively traded contract and this could mean that investors think oil will be under pressure," Le Brun said.

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Published: 19 May 2011, 12:42 PM IST
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