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Wed 31 Aug 2011 11:09 AM

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Brent stays near $114 on US stimulus hopes

Supply disruptions, moves to boost economy may increase US oil demand

Brent stays near $114 on US stimulus hopes
Investors pin hopes on a pick-up in seasonal fourth-quarter demand
Brent stays near $114 on US stimulus hopes
oil plant, chemical plant, oil and gas refinery, oil and gas plant

Brent crude hovered at $114 a barrel on Wednesday, after
posting six days of gains, on expectations the United States will act again to
try and boost growth in the world's biggest economy and increase demand for
oil.

Investors also eyed storm developments for potential supply
disruption in the United States and a pick-up in seasonal fourth quarter demand
even as a larger-than-expected rise in crude inventories depressed US oil
futures.

Brent is poised for the steepest monthly loss since June,
while US crude is headed for the biggest dip since May as fears another
recession in the United States and a debt crisis in the euro zone could cut fuel
demand sparked a sell-off.

Brent crude was down 9 cents at $113.93 by 0318 GMT, after
settling at a four-week high of $114.02 a barrel. US crude fell 31 cents to
$88.59 a barrel, snapping four days of gains.

"Investors are already looking at fourth-quarter
demand, which doesn't look so bad from a seasonal standpoint," said Tony
Nunan, a risk manager at Mitsubishi Corp. "If we can get beyond the fear
of a second recession, the oil market still stands a chance for upside."

Minutes from an August Fed meeting showed it was considering
a range of actions to help the struggling economy, including the unprecedented
step of tying the interest rate policy outlook to a specific unemployment
level. Some market observers were also expecting that the Fed could introduce a
third round of bond buying, or quantitative easing.

"There's no way that the Fed could have another round
of quantitative easing, but the financial community seems to have a strong
expectation," Nunan said.

Federal Reserve Chairman Ben Bernanke, by delaying the
September meeting, could be "leaving the door open" to assess more
data on housing and unemployment, he added.

Others such as Jonathan Barratt, managing director of
Commodity Broking Services in Sydney, said it was still not clear if there
would be another round of easing measures.

"I am of the opinion that they will do nothing,"
he said. "The United States could suffer in terms of growth but it will
not be a detrimental issue."

Technical charts showed that Brent and US crude are heading
for further gains, Reuters market analyst Wang Tao said.

An industry report showed a higher than expected rise in US
crude inventories last week as imports rose and refinery utilization dropped,
while gasoline saw a big draw.

Crude stockpiles rose 5.1 million barrels for the week to
Aug. 26, data from the American Petroleum Institute showed, well over analyst
expectations for a 400,000-barrel gain. The government's Energy Information
Administration will issue its data at 10:30 a.m. EDT.

Investors were watching the development of Tropical Storm
Katia in the Atlantic, which picked up speed and could become a hurricane by
Wednesday, the US National Hurricane Center said.

A tropical wave over the northwestern Caribbean Sea has a 10
percent chance of becoming a cyclone in the next 48 hours, and could move into
the western Gulf of Mexico, home to a large concentration of oil and natural
gas facilities.

In Libya, oil production can restart within weeks and reach
full pre-war output within 15 months, the newly-appointed chairman of the
country's National Oil Corporation (NOC) said.

The resumption of Libyan production was expected to weaken
Brent prices, but a force majeure on Nigerian Bonny Light supply and an embargo
on Syrian exports has stemmed any slide, Mitsubishi's Nunan said.

The Bonny Light supply disruption has keep US crude's
discount against Brent wide at around $25.34.

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