Brent steady near $114, supply fears ease
London, August 15, 2012
Brent crude oil futures dipped below $114 per barrel on Wednesday, as supply disruption concerns faded slightly, but hopes of central bank intervention to bolster the global economy kept prices near three-month highs.
Worries about disruptions to supply, while still a significant factor, eased slightly after the United States said it did not believe Israel had made a decision to attack Iran.
Brent crude was 10 cents lower at $113.93 per barrel, after ending up 43 cents at its highest settlement since May 3 on Tuesday. US crude fell 13 cents to $93.30 after closing 70 cents higher.
ECB President Mario Draghi has said the bank will flesh out plans to bring some stability back to strained euro zone bond markets early next month, driving hopes the bloc could start to right itself again in the second half of the year.
There are also hopes that the Federal Reserve may announce plans to print money to boost the economy.
"The market is still waiting for any indication that there will be an announcement on quantitative easing by (Federal Reserve Chairman) Ben Bernanke, and we'll be in a holding pattern," Gareth Lewis-Davies at BNP Paribas said.
Expectations of an imminent announcement were dampened, however, after July retail sales numbers came in better than expected.
US Defense Secretary Leon Panetta, who visited Israel two weeks ago, told reporters it was important that military action should be the last resort.
Asked about comments by Israeli officials, Panetta said: "I don't believe they've made a decision as to whether or not they will go in and attack Iran at this time."
His remarks helped ease worries of a conflict after Israeli Prime Minister Benjamin Netanyahu said on Sunday that most threats to Israel's security were dwarfed by the prospect that Iran could obtain nuclear weaponry.
Brent has swung between a high of more than $128 per barrel and a low of $88.49 this year as investors' focus has moved between heightened Middle East supply worries and a weakening growth outlook.
The range of nearly $40 is the widest since 2009, when it was $40.91. In 2011 the range was $34.65 and in 2010 $27.33.
Some market observers think that the high price of oil will likely suppress demand, and act as a brake on further increases.
"We do expect to see a negative impact on oil demand at current flat price levels," Olivier Jakob, analyst at Petromatrix said.
"It does take time to filter through but we do believe that we are in that price zone."
A surprise increase in stockpiles in the world's biggest oil consumer is also weighing on prices.
Total crude inventories rose 2.8 million barrels in the week to August 10, the American Petroleum Institute said, compared with analysts' expectations for a drawdown of 1.7 million.
The API data will be followed by more closely watched numbers from the US Energy Department, providing a pointer to the country's demand growth outlook.
Brent futures are unlikely to dip much further as a drop in North Sea crude output and lingering supply worries put a floor under prices, analysts said.
"Crude might get stronger because of the issues with North Sea production," said Victor Shum, a consultant at IHS Purvin & Gertz. "Definitely the Iran sanctions are already starting to have an effect, and we can see the obvious effects on crude prices." – Reuters