Brent oil drops on weak US data

London: Brent oil futures slipped towards $103 a barrel on Thursday after a sharper-than-expected drop in US factory output muddied the outlook for demand and a stronger dollar added downward pressure.

Brent fell 62 cents to $103.06 a barrel by 0857 GMT, after rising on Wednesday by $1.08, the most in dollar terms since May 6. US oil dropped 87 cents to $93.43.

The spread between US benchmark West Texas Intermediate and European Brent spread widened for a third day in an effort to rebalance a costly rail transport bill incurred by US refiners.

“For the last two days, Brent has gained a premium to WTI, if one considers rail costs in the US” Olivier Jakob at consultancy Petromatrix said, “US crude differentials weakened, meaning that Brent-WTI was too narrow.”

An uncertain global economic outlook comes at a time when supplies are rising made it difficult for prices to move higher.

The dollar reached levels near a six-week high against the euro on prospects for more monetary easing in the euro zone and scaled back asset-buying in the United States.

The euro zone economy contracted for a sixth consecutive quarter, with France slipping into recession, adding to the bearish outlook for demand.

Data showed US factory output dropped in April, and manufacturing activity in New York state contracted this month as a recession in the euro zone and slower growth in China undercut demand for exports from the world’s biggest economy.

Stockpiles

US crude stockpiles declined by 624,000 barrels during the week to May 10, according to data from the Energy Information Administration (EIA). Analysts had forecast on average a 300,000 barrel crude build.

Investors did not take the drawdown as an indicator of a change in trend, however, because gasoline and distillate inventories jumped well above expectations.

“US stocks are building, so demand is relatively weak, putting pressure on refining margins in Europe,” Jakob at Petromatrix said.

Gasoline stockpiles on the East Coast rose by 1.8 million barrels in the week as the nation heads into the summer driving season and were up nearly 10 million barrels from the same time last year.

“For the first time in six weeks, gasoline stocks built, unexpectedly halting the seasonal stock decline,” BNP Paribas analysts said in a note.

“Stocks are now near the top of the narrow five-year range for this time of year, having previously been trending downwards at usual seasonal rates and at levels marginally above normal.”

Oil prices drew some support from news that the United Nations’ nuclear agency failed to persuade Iran to let it resume an investigation into suspected atomic bomb research, reviving worries about supply disruption.