Singapore: Brent crude held near $109 on Tuesday on cautious optimism that European banks may avert a financial crisis after leaders promised a plan to resolve the region’s debt woes while a strike in Opec member Kuwait threatened exports.
World stocks and commodities markets rebounded on Monday, buoyed by the pledge from German and French leaders to come up with a plan by the end of the month to tackle Greece’s debt woes and recapitalise European banks.
November Brent crude futures edged down 20 cents to $108.75 a barrel by 11:46am. Prices closed at $108.95 on Monday, their highest in two weeks. US November crude inched up 3 cents to $85.44 a barrel. Both contracts jumped nearly 3 percent on Monday.
“The market is a little bit optimistic over the European banking issue, but we still need to watch the situation carefully,” said Ken Hasegawa, a commodity sales manager at Newedge Japan.
“This problem is not so easy to fix as it’s not only about Greece but also other countries. It may take years.”
West Texas Intermediate crude futures may trade between $85 and $90 a barrel by year end while a more rosy economic outlook in 2012 will lift prices to above $100, according to Hasegawa.
Brent will maintain a premium of $20 to $25 a barrel to WTI this year while the spread could narrow to between $10 and $20 next year, he said.
Investors remain cautious due to the lack of detail about the Franco-German plan, and the risk that a solution may be derailed by an event such as political deadlock in Slovakia, the one euro country that has yet to approve the EFSF expansion.
“That momentum may be growing in favor of a solution,” analysts from MF Global said in a note.
“That should benefit energy markets as it suggests that economic demand for energy will improve.”
Oil investors were closely watching for any supply disruption from Kuwait after a strike by a customs union shut ports and halted vessel traffic.
“This will be a supportive factor for oil, but I don’t think it will be serious because it is still easy to get crude from other parts of the world,” Newedge’s Hasegawa said.
Investors are also keeping an eye on oil inventories in the United States for demand cues in the world’s largest consumer.
“The US economic outlook is more healthy than Europe but it’s still a very mild recovery,” Hasegawa said.
US commercial crude stockpiles probably rose last week as imports rebounded and refinery runs fell, a preliminary Reuters poll of analysts found on Monday.