Brent dips toward $110 on demand worries, US supply

  • Share via facebook
  • Tweet this
  • Bookmark and Share

Brent crude slipped toward US$110 a barrel on Wednesday, dropping for a second straight day, as swelling oil inventories in the United States and recent weak data fuelled worries about demand from the world's top consumer.

US oil prices suffered further pressure from concerns about a prolonged pipeline outage in the Midwest leading to a buildup in stockpiles near the delivery point of the benchmark contract in Cushing, Oklahoma.

Crude oil stocks in the United States rose 4.7m barrels for the week ended March 29, according to data from industry group the American Petroleum Institute, much higher than the 2.2m forecast by a Reuters poll.

Investors suggest the build in inventory reflects a weak economy that is still struggling to recover, and limiting oil demand growth.

"The US economy took such a body blow three, four years ago with the financial crisis, it's like a patient that's been hit by a car, it's going to take a long while for it to recover," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

"And if the patient is in such shape, it is going to take time for us to start seeing demand actually growing to levels before the financial crisis."

Brent dropped 37 cents to US$110.32 a barrel by 0419 GMT, after hitting a low of US$110.16 earlier in the session. US crude slid 50 cents to US$96.69 a barrel.

And a slew of recent weak economic data shows oil prices may face further headwinds.

Britain's manufacturing activity shrank for a second straight month, a survey showed on Tuesday, while US factory activity grew at its slowest rate in three months in March, indicating a muddy outlook for oil demand.

Europe's demand for oil has also been hit by seasonal refinery maintenance, traders said.

"We could possibly see the backwardation on the Brent curve between May and June narrow further because there is a lot of crude now swashing around in Europe, with no refinery demand," Ritterbusch said.

The Brent-US crude spread widened slightly to US$13.63 a barrel from its settlement in the previous session.

Brent's premium to US crude rose to a more than one-week high of US$14.66 on Tuesday amid uncertainty surrounding the impact of the ruptured Exxon Mobil Pegasus pipeline in the US Midwest.

Investors said the pipeline shutdown could potentially contribute about 300,000 to 400,000 barrels a week to crude inventories at Cushing.

"But the glut again in Cushing is reflective also of demand and the pipeline alone isn't going to drain off supply," Ritterbusch said.

Exxon said it was developing a plan to excavate, remove and replace the ruptured portion of the pipeline, while a US pipeline agency said Exxon would need to test and submit a remedial work plan before it could resume operations.

Markets are now waiting for key US jobs data later this week for clues to the health of the world's largest economy and indications on its appetite for oil.

Related:
Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

Please post responsibly. Commenter Rules

  • No comments yet, be the first!

Enter the words above: Enter the numbers you hear:

All comments are subject to approval before appearing

Further reading

Features & Analysis
Petroleum producers shift attention from Middle East: Kemp

Petroleum producers shift attention from Middle East: Kemp

Following four decades of war, sanctions, nationalisation and...

1
Gold industry shifts east as Dubai plans huge refinery

Gold industry shifts east as Dubai plans huge refinery

$60m refinery being built by Kaloti Precious Metals in Dubai...

Dubai gold dealers shun Turkish bars on fear of links to Iran

Dubai gold dealers shun Turkish bars on fear of links to Iran

Trade in Turkish gold bars to Iran via Dubai is drying up as...

2
Most Discussed