Singapore: Brent futures were steady above $107 a barrel on Thursday, as investors weighed a sharp drop in US crude stocks against persistent worries that the euro zone debt crisis would curtail global oil demand.
US government data showed domestic crude stocks fell 10.6 million barrels last week to 323.6 million barrels, the lowest level since the week to 26 December 2008, after logging the biggest weekly inventory drawdown in nearly 11 years.
Analysts polled by Reuters had projected an average 2.3-million-barrel drawdown.
Brent crude edged up 2 cents to $107.73 a barrel by 09:30am after settling 98 cents higher, or 0.92%, at $107.71 a barrel on Wednesday. US crude rose 16 cents to $98.83 a barrel.
“I was surprised by the size of the drawdown, which is helping support oil prices,” said Ken Hasegawa, a derivatives manager with brokerage Newedge in Tokyo. “But there’s still a lot of uncertainty over Europe.”
However, the sharp drop last week could be partly due to a downward adjustment after an overstatement of inventories the previous week, analysts at BNP Paribas said in a research note.
“The scope for further crude draws may moderate due to the combined effect of crude production increases emerging and how refinery runs respond to weaker margins,” the report said.
In Europe, initial optimism over a bigger-than-expected take up by banks of cheap, long-term loans from the European Central Bank (ECB) fizzled as doubts remained over how much of the funds will actually flow into struggling euro zone economies and help restore confidence.
Also weighing on sentiment was news that Italy’s economy contracted 0.2% in the third quarter, putting the country into what is expected to be a prolonged recession as it grapples with a debt crisis.
Euro zone uncertainty has dampened the market’s mood after a slew of positive economic news out of the US this week raised hopes of growth accelerating in the world’s biggest oil consumer.
Demand is also expected to hold firm in China, the no.2 oil user, after apparent oil demand gained 2.6% from a year earlier to 9.58 million barrels per day (bpd) in November, the second highest daily rate on record, Reuters calculations from official data showed on Wednesday.
“We expect refinery runs to remain high in December so product inventories should continue to build,” analysts at JP Morgan said in a report.
China’s commercial banks anticipate looser monetary policy in the first three months of 2012, surveys from the People’s Bank of China revealed on Thursday, a development that will support oil demand next year.
Brent crude is forecast to average $105 a barrel next year, not far below this year’s record high average near $111, a Reuters poll found.
Respondents think oil will remain expensive because of worries about supplies from producers Iraq and Kazakhstan and the possibility that tighter sanctions could curb Iranian oil sales. Low crude stocks and strong diesel demand also are supporting prices.
Diplomats from the United States, the European Union and other allies agreed on Tuesday to step up pressure on Iran to force it to resume talks over its nuclear programme, raising fears of crude supplies being disrupted from the world’s fifth-largest oil exporter.
In Kazakhstan, KazMunaiGas Exploration Production said on Wednesday it expects to meet its reduced oil production target for the year after police deployed armed security around the oilfield closest to the scene of the country’s deadliest riots in decades.