Brent holds above $109, demand outlook cloudy
Singapore, October 8, 2013
Brent futures fell slightly but held above $109 on Tuesday, as oil production in the Gulf of Mexico returned to normal and the US budget crisis continued to cloud the outlook for demand in the world's biggest oil consumer.
One week into the US government shutdown and only 10 days from a critical deadline to raise the country's debt ceiling, a few faint glimmers of hope surfaced on Monday with President Barack Obama saying he would accept a short-term increase in the nation's borrowing authority to avoid a default.
Brent was 14 cents lower at $109.54 per barrel at 0249 GMT, after closing 22 cents higher on Monday. The benchmark had settled within a tight range between $109 and $110 per barrel in the previous four sessions.
US oil was up 6 cents at $103.09 per barrel, after closing 81 cents lower.
Concerns continued to linger that the US government shutdown will reduce demand for oil and hurt consumer confidence. JPMorgan economists estimate that every week of shutdown translates to a 0.12 per cent reduction on the US quarterly annualised GDP growth rate.
"Energy markets are carefully watching the situation in the United States. It's not so much about what is happening right at the moment, but how it will all work out," said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
"Volumes are woeful at the moment, and we see a lack of commitment on either side," said McCarthy.
NORTH SEA SUPPLY
Oil production in the US Gulf of Mexico was ramping up toward normal on Monday after Tropical Storm Karen faltered off the Gulf Coast. Storm warnings had prompted energy firms to shut nearly two-thirds of oil output as of Saturday.
Prices were supported by a weak US dollar that continued to hover near an eight-month low against a basket of major currencies on Tuesday. A weak greenback makes it cheaper for importing countries to buy oil priced in the US currency.
Upward pressure on Brent could ease, as the supply of North Sea crude that underpins the benchmark is set to reach a 2013 high in November, according to loading programmes. The increase is another sign of ample supply in the Brent oil market, on top of the partial return of Libyan output.
Growth in China's services industry slowed in September from the previous month and optimism over the business outlook weakened, a survey by HSBC showed on Tuesday. The survey indicates a slow economic turn around in China, which is expected to overtake the US as the world's biggest crude oil importer this year.
The reading is in contrast to China's official services PMI, released last week, which showed the sector expanded at the fastest pace in six months in September as demand grew.
In other news, Colombia's second most important oil pipeline, the Cano Limon-Covenas, was temporarily shut down on Monday after three bomb attacks.
The closure of the 780-km (484 mile) 80,000 barrel-per-day pipeline owned by state oil company Ecopetrol did not immediately affect exports or oil production by US oil producer Occidental Petroleum Corp, which feeds crude into the pipeline. - Reuters