Oil falls for 3rd session as investors offload risk
Explosion at Mexico refinery supports fuel prices.
September 8, 2010 9:07 by Reuters
Oil fell for a third straight session on Wednesday, with the U.S. benchmark depressed by brimming petroleum stockpiles, as the dollar jumped and Asian equities declined on investor attempts to reduce risk exposure.
The dollar gained almost 1 percent against a basket of currencies while Japan’s Nikkei average fell 2 percent on renewed concerns about European banks and the global economy, which pulled global stock markets down from one-month highs on Tuesday.
The euro was on the defensive as the latest scare over the euro zone banking system slapped it to lifetime lows against the Swiss franc and Australian dollar.
fell 32 cents to $73.77 a barrel by 0013 GMT. The front-month contract pared losses on Tuesday after an explosion at a refinery in northern Mexico raised speculation that fuel import requirements would increase from the Latin American country, the biggest buyer of U.S. oil products. It had earlier touched a one-week trough below $73.
“As soon as there is some fear of risk of a double-dip, people pull out of commodities and equites and go into the dollar,” said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.
“People feel that oil demand will pick up as the economy picks up, but they have been braving that for six months thinking that inventory would eventually draw down.”
Total U.S. petroleum stockpiles are at their highest level since weekly records began in 1990.
Crude stocks at the land-locked benchmark pricing point in Cushing, Oklahoma, have remained at high levels, depressing the value of U.S. crude relative to European Brent, which was trading about $3.60 higher than U.S. benchmark West Texas Intermediate (WTI) on Wednesday, shedding 42 cents to $77.34.
Brent’s premium to WTI was the biggest since mid-May. The appearance of such an unusually wide spread is known among oil analysts as WTI dislocation, a market condition where the U.S. benchmark becomes disconnected from seabourne oil markets, where prices are largely determined by global fundamentals.
“The problem with the U.S. is their visibly high inventories, while waterbourne Brent has a ready outlet in Asia,” Nunan said.
“It does compete with Persian Gulf crude, but it is still a lot easier to dissipate excess supply” than for WTI.
Analysts including JP Morgan’s Lawrence Eagles expect Cushing supplies will rise in coming weeks as U.S. refineries enter autumn maintenance, reducing their demand for crude.
Summer maintenance at North Sea fields and a strong Urals crude market have this time also contributed to Brent’s widening premium.
Still, overall U.S. crude inventories probably fell for the first time in three week last week, down by a moderate 600,000 barrels, as refineries reduced imports in preparation for stormy weather, a Reuters poll showed on Tuesday.
Weekly industry and government statistics on inventories will be delayed by one day this week, to Wednesday for the American Petroleum Institute and Thursday for the Energy Information Administration.
The poll also showed forecasts for a 700,000 barrel increase in stockpiles of distillates, including heating oil and diesel fuel, and a 900,000 barrel decline in gasoline supplies.
The U.S. National Hurricane Center was monitoring three tropical systems in the Atlantic basin, one approaching the Caribbean Sea and two near Africa’s west coast.
The NHC said cloudiness and showers over the Leeward Islands and northeastern Caribbean Sea were associated with Gaston’s remnants, but the system had just a 20 percent chance to become a tropical cyclone again during the next 48 hours.
It was too early to tell whether any of the systems might move into the Gulf and disrupt offshore energy production.
(Editing by Manash Goswami)