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Oil slips from 12-week high, stimulus eyed

Chevron refinery fire lifts US fuel prices

Image Credit: AFP
A Chevron fuel station in Greenbrae, California. A fire at a Chevron Corp refinery in California also supported crudeprices and caused regional gasoline prices to spike.
Gulf News

London: Brent crude oil steadied around $112 per barrel on Wednesday, retreating from 12-week highs but supported by worries over falling North Sea output and hopes for more economic stimulus measures on both sides of the Atlantic.

Brent has risen more than 25 per cent since the end of June and hit $112.56 on Tuesday, its highest since mid-May, on expectations the world’s largest economies would take more measures to stimulate growth.

Expectations that central banks will ease monetary policy and announce further rounds of quantitative easing (QE), moves likely to support commodities, have increased investors’ appetite for riskier assets and pushed up equities.

Brent crude futures for September fell $1.15 to a low of $110.85, before recovering to trade around $111.90 by 1257GMT. US crude was down 20 cents at $93.47. The US crude oil contract settled on Tuesday at its highest since May 15, partly supported by a fire at a US refinery.

“The oil market is looking for reasons to be bullish,” said Eugen Weinberg, global head of commodities research at Germany’s Commerzbank in Frankfurt. “Risk appetite is back and I wouldn’t be surprised if this rally continues for a while.”

Weinberg said the price retracement was just a consequence of recent sharp gains: “It is just profit taking.”

European Central Bank President Mario Draghi said last week the ECB could again start buying government bonds, but details of how it would stabilise the bloc’s debt markets are unclear.

A top US Federal Reserve official said on Tuesday the central bank should launch another bond-buying programme sufficient to get the economy back on its feet. China has also pledged to adjust its monetary policy later this year.


Brent has found support from news of a major round of maintenance in the North Sea over the next two months, which will cut to a record low production of the four grades of crude that underpin the benchmark contract.

The four grades - Brent, Forties, Oseberg and Ekofisk - are scheduled to pump 720,000 barrels per day (bpd) in September, down more than 50,000 bpd from August due to oilfield maintenance and natural declines.

Swiss energy market analyst Olivier Jakob said the sharp cut in production from Britain’s Buzzard oilfield feeding the key Forties stream, which usually sets the price of the North Sea benchmark, could leave Brent open to a “Super Squeeze”.

“We do not want to be short the Brent front spreads until the end of the Buzzard maintenance, as the risk is just too great to see Brent being squeezed,” Olivier said.

The price spread between September and October Brent contracts {LCOc1-LCOc2} widened to $1.70, up from a backwardation of $1 last week, pointing to strong prompt demand.

A fire at a Chevron Corp refinery in California also supported crude prices and caused regional gasoline prices to spike.

Hurricane Ernesto is forecast to re-emerge Wednesday in the southern Gulf of Mexico, where state oil company Pemex has port facilities and offshore platforms.

This could affect the US oil market, the world’s biggest, especially if oil inventories are depleted, analysts say.

US crude stocks fell sharply by 5.4 million barrels last week, the American Petroleum Institute said, well above analyst expectations for a 300,000 barrel drawdown.

The EIA on Tuesday raised its forecast for 2012 world oil demand growth by 90,000 bpd to 760,000 bpd. It raised its 2013 demand growth estimate by 140,000 bpd to 870,000 bpd.

The oil market could see more supply as South Sudan hopes to resume production in September after reaching an interim agreement with Sudan on export fees. It may take a year to return to full capacity, South Sudan’s top negotiator said.