Brent hovers below $98 on US economy, stimulus
Singapore, January 27, 2011
Brent crude hovered at below $98 on Thursday after better-than-expected US home sales data and a pledge by the Federal Reserve to keep monetary policy steady drummed up market sentiment.
President Barack Obama's call for lower corporate taxes also spurred hopes for higher profits and stronger energy demand.
"Any good economic data out coming out of America is good for oil," said Ben LeBrun, a Sydney-based markets analyst at CMC Markets.
ICE Brent crude for March fell 21 cents to $97.70 a barrel at 0455 GMT, after a 2.79 per cent gain in the previous day.
US crude oil for March delivery fell 21 cents to $87.12 a barrel. The March contract rebounded 1.32 per cent on Wednesday after six straight days of losses.
The greenback slipped on Thursday to 11-week lows against a basket of currencies the Fed's decision to keep a $600 billion bond-buying plan backed the view that a wave of liquidity seeking higher returns would continue to flow through into riskier assets.
"Oil prices are very much on a knife edge," LeBrun said.
US economic data is improving, but prices could fall on news of any supply hike from OPEC and on further measures from China to tame inflation, he said.
Brent and US crude hit more than two-year highs earlier this month, Brent trading just 80 cents shy of the $100 a barrel milestone on Jan. 14. US crude a high of $92.58 on the first trading day of the year.
Reuters markets analyst Wang Tao said on Jan. 20 that technical charts showed Brent was unlikely to touch $100 a barrel within four weeks.
Brent crude's premium against US benchmark crude, also known as West Texas Intermediate, leaped to just below $10.70 on Wednesday.
The spread represents crude economics in the US Midwest and international markets and, over time, drive investments that will normalise price discrepancies, JPMorgan analysts led by Lawrence Eagles said in a Jan. 26 note.
US crude inventories rose more than expected last week as imports increased and refinery utilisation dropped, government data showed Wednesday. Inventories at Cushing, Oklahoma, the delivery point for WTI, rose 862,000 barrels.
Valero Energy Corp's executive in charge of crude supply to the US leading independent refiner said WTI has "almost become irrelevant" because of its deep discount.
JPMorgan said pipeline flows would need to be reconfigure to ease the high stocks, but the forward Brent-WTI spread indicated that the market does not see a solution by 2012.
"Prompt WTI spreads have to remain wide for some time to come, and supercontangos will remain a recurring feature on the landscape," the bank said.
"Longer-term incentives however suggest that the Brent-WTI spread in 2012 needs to widen."
Reuters technical analyst Wang Tao said on Jan. 25 Brent's premium to WTI is on a firm uptrend and is expected to reach $11.29 per barrel in two weeks, after a minor drop to $8.00. – Reuters