Singapore: Brent crude fell below $112 a barrel on Friday as growing doubts within the US Federal Reserve about the side effects of its stimulus programme, and the prospect of more budget battles in Washington, curbed investor appetite for riskier assets.
Investors netted profits on oil after prices rose earlier this week as the US Congress approved a fiscal deal that averted economic calamity. Further talks are to take place in Washington next month to tackle the debt ceiling, and signs of hesitation within the Fed about more increases to the central bank’s $2.9 trillion balance sheet, weighed on prices.
Brent crude for February delivery had dropped 68 cents to $111.46 a barrel by 7.36am (GMT), although it is set to post a second straight week of gains. US crude was down 73 cents to $92.19, but on track for a fourth weekly rise.
“Most people do not want to take further risks in equities and commodities if the QE [quantitative easing] programme is not going to continue beyond 2013,” said Tetsu Emori, a commodities fund manager at Astmax Investments in Tokyo.
While the Fed said it would keep buying bonds to boost the economy over coming months, minutes of a December meeting showed that some officials are increasingly concerned about the programme’s potential risk to financial markets.
Several officials thought it would be appropriate to slow or stop asset purchases well before the end of 2013, the minutes showed.
The Fed’s asset buying policy has been a crucial factor underpinning investor risk appetite, which buckled after the minutes were released. Global equities fell and the US dollar gained, making dollar-denominated oil more expensive for holders of other currencies.
West Texas Intermediate for February delivery fell as much as $1.40 to $91.52 a barrel on the New York Mercantile Exchange. The graded has added 1.1 per cent this week. Brent was $18.97 more than WTI, compared with $19.27 yesterday.
Yet oil could get a boost later if jobs and oil inventory data from the United States affirms that the world’s largest economy and oil consumer is on track for a recovery.
Thursday’s data from the American Petroleum Institute showed a steeper-than-expected drop of 12 million barrels in crude inventories in the week to December 28. Analysts were expecting a 900,000 barrel draw. Data from the US Energy Information Administration is due later on Friday.
“That’s a very good number,” Astmax’s Emori said, adding that market sentiment will be positive if the EIA data follows the API’s.
The US government will also release non-farm payroll data, a key economic indicator that could offer further evidence of underlying strength in the economy as 2012 ended. The latest jobs data showed that private-sector employers shrugged off the looming budget crisis and stepped up hiring in December.
“If the positive news continues, there is likely to be a piling on of traders, as the story for 2013 becomes an even more compelling one,” Jason Schenker, president of Texas-based Prestige Economics, said in a note.
Yet oil product prices may come under pressure as supply will rise when Motiva Enterprises restarts its new 325,000 barrel-per-day (bpd) crude distillation unit at its Port Arthur, Texas, refinery.
Abu Dhabi National Oil Co (Adnoc) lowered official selling prices (OSP) of all grades and premiums to the Dubai average also dropped after the key Murban grade swung into discount in the spot market last month.
Saudi Arabia will likely lower OSPs for medium and heavy grades and marginally raise prices for lighter grades, a Reuters poll showed.
Trading in March cargoes will kick off next week after the other producers announce their OSPs.
Vitol bought two March Dubai partials from Chinaoil at $107.50 per barrel.
Adnoc said late on Thursday that it has cut the December retroactive price for its key Murban crude by $1.35 a barrel from November to $110.75 a barrel.
Murban price was set at a premium of $4.41 a barrel to the Dubai December average, down from $4.84 a barrel for November.
While the OSPs were cut by 95 cents per barrel to $1.45 per barrel across grades, their differentials to the Platts Dubai average slipped by 3-53 cents per barrel.
- Top oil exporter Saudi Arabia may lower its official selling price for the heavy grades it sells to Asia for a third straight month in February due to weaker margins and expectations of dwindling demand, a Reuters poll showed.
Saudi Arabia may lower the OSP for Arab Heavy by 25 cents from the previous month, according to the median of estimates of five traders and refiners.
The OSP for Arab Medium may drop by 15 cents, while those for Arab Light and Arab Extra Light may rise by 10 cents in February, the poll showed.