Brent hovers above $97 after hitting 9-month low, demand fears fester3 min read . Updated: 18 Apr 2013, 12:39 PM IST
US distillate stocks, East Coast gasoline stocks rise, says EIA; IMF trims projections for global economic growth
Singapore: Brent crude was down slightly on the day at $97 per barrel on Thursday, after slipping to a nine-month low earlier in the session as worries over the outlook for demand festered amid rising US fuel supplies.
Oil’s drop to its intraday low amid choppy trading came as part of a wider commodities rout triggered by data released Monday showing growth in China, the world’s second-largest oil consumer, had slowed unexpectedly in the first three months of 2013.
Brent crude futures for June delivery hit a low of $96.75—its weakest since July last year, before recovering to $97.55 by 11:45 am, down 14 cents on the day. Brent has dropped for the last six sessions, its longest losing streak since October 2012.
US crude futures dropped 4 cents to $86.64 a barrel, after earlier shedding more than $1 to hit a low of $85.61.
“We’re just seeing an ongoing adjustment to the weaker data seen earlier in the week ... what we’re seeing is a price adjustment to an emerging outlook that supply is increasing," said Ric Spooner, chief market analyst at CMC Markets in Sydney.
“We saw last night, for example, that US domestic production is continuing to ease up all the time and the demand growth is not doing overall a lot better ... so when you get a situation in commodity markets where you get into a surplus situation or a potential surplus, it often can have a large impact on prices."
A report from the US government’s Energy Information Administration showed a surprise drop in US crude inventories, but an increase in distillate and gasoline supplies on the US East Coast, which includes the New York harbour.
Stockpiles of crude at the Cushing, Oklahoma delivery point for the US oil futures contract, however, climbed by more than a million barrels, the data showed.
The EIA report follows a cut in global growth projections by the International Monetary Fund (IMF), for this year and next.
The head of the International Energy Agency, Maria van der Hoeven, said the oil price decline was proof that the market was adequately supplied.
Brent prices have shed more than 8 percent in the past six sessions, their steepest 6-day drop since September 2011.
“Particularly for Brent, we’re seeing an unwinding of risk premium related to the geopolitical situation and spot demand fundamentals are taking over," said Spooner from CMC Markets.
He was referring to the ongoing standoff between the West and Iran over Tehran’s disputed nuclear programme, which helped keep Brent above $100 for most of last year, and escalating tensions on the Korean peninsula.
Economy concerns persist
Oil prices were also capped by risk of political uncertainty in the euro zone, where Italy’s divided parliament begins voting for a new state president on Thursday, a crucial step towards resolving the stalemate since the inconclusive election in February and to carry on with fiscal reforms.
A slowing economy could push Brent oil below $95 a barrel in the near term, analysts from Bank of America Merrill Lynch said in a note.
“Brent prices have declined by almost $20/bbl on a combination of seasonal and cyclical headwinds. Some of these cyclical pressures are too large to ignore, such as China’s drop in energy demand growth or Europe’s sharp contraction in credit supply," they wrote.
China’s implied oil demand fell to its lowest in seven months in March, fanning concerns that recovery in demand may be less vigorous than expected.
If Brent continues to drop towards $90 a barrel, OPEC might start to tighten supply, Spooner added.
OPEC members will discuss holding an emergency meeting if oil prices stay below $100 a barrel, Iran’s oil minister Rostam Qasemi said on Wednesday, but the idea got little support from the group’s members across the Gulf.
OPEC’s next meeting is scheduled for May 31, but Iran’s Press TV reported Qasemi as saying the Organization of the Petroleum Exporting Countries (OPEC) would consider calling an emergency meeting if prices remained below $100.
Investors seemed to shrug off news of Royal Dutch Shell declaring force majeure on Nigerian Bonny Light crude oil exports. The company said it was shutting down the 150,000-barrel-per-day Nembe Creek pipeline in Nigeria for repairs.