Singapore: Brent crude rose on Wednesday, reversing three days of losses, as Greece’s embattled government survived a confidence vote critical to avoid a debt default and as investors awaited the outcome of a key US Federal Reserve meeting.
The US crude benchmark slipped in part after an industry report showed crude stocks in the world’s top oil consumer remained were little changed, and as the dollar gained.
Brent crude for August increased 25 cents to $111.20 a barrel by 8:47am, after rising to as much as $111.30. US oil slipped as low as $93.50 a barrel, and was down 53 cents at $93.64 a barrel.
The market will be looking to the Fed for clues about its handling of the slowdown in the economic recovery that may force policymakers to plan for the possibility that things may get worse. In Europe, the International Monetary Fund’s warning about risks to Spain added to concerns about the euro zone.
“It looks like we are going to see a long slog through the rest of this year,” said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp. “People are worried about the world’s economic recovery. We are just squeaking by from one hurdle to another.”
The Fed remains leery of taking any additional steps to support the recovery, with underlying inflation moving higher and officials still smarting from the barrage of criticism that followed their latest round of stimulus.
Yet, recent signs the economy is sputtering, evident in manufacturing activity and employment, will put any debate about withdrawing stimulus on the backburner.
“We are going to see cautious trading take place ahead of the release of the Fed’s statement,” said Serene Lim, an oil analyst at ANZ in Singapore. “The market will be watching for any shift, any change in the tone, any change in the words.”
US crude oil stocks fell by a small 81,000 barrels last week as refinery utilization rose, while oil product stocks fell more sharply than expected, American Petroleum Institute data showed. Analysts had expected a drop of 1.4 million barrels in crude stocks for the week to 17 June, according to a Reuters poll.
Brent and the US futures may continue to trade ‘out of sync´ if data expected later in the day from the department of energy shows a build in crude and gasoline stocks in the United States, Nunan at Mitsubishi said.
Stock markets from the US to South Korea gained after Prime Minister George Papandreou won the vote, with the Nasdaq posting its biggest percentage gain since October on Tuesday, while the S&P 500 marked its best day in two months.
After clearing its confidence vote, the Greek government now faces a more arduous task of passing an austerity plan in order to secure a new bailout from the European Union and IMF.
Spain faces considerable risks to its recovery and must deepen and conclude reform work to allay market concerns, the International Monetary Fund said on Tuesday.
In an annual mission report, the IMF said Spain’s wide-ranging policy response last year had helped the economy to rebalance, but the repair of the economy was incomplete and risks were considerable.
The euro ran into profit-taking in Asia on Wednesday after the Greek government won a vote of confidence, but further losses may be limited as the market’s focus turns to the Federal Reserve.
“It is going to be a mix of factors today,” Lim said. “We have economic news and energy market news from the DOE on stockpiles in the U.S.”