Brent steady above $113 on bargain buys after price slump
Brent recovers after 4 straight sessions of losses; Hedgers, bargain hunters buy on price slump; U.S. crude inventory to rise for 7th week - poll
May 8, 2012 7:43 by kippreport
Brent crude held steady above $113 a barrel on Tuesday, recovering slightly after four straight sessions of losses caused by fears that the slowing economies of the United States and the euro zone would reduce oil demand.
Changes in the euro zone political scene after France elected a new leader and Greece’s inability to form a new government have shaken an already fragile outlook for the debt-ridden region while economic growth sputtered in the United States after jobs creation fell.
Brent crude rose 34 cents to $113.50 a barrel by 0331 GMT. The contract slumped on Monday to $110.34, the lowest intraday price since Jan. 30, but quickly recovered to settle 2 cents lower at $113.16 a barrel.
U.S. crude fell for a fifth day at $97.81, down 13 cents.
“There may have been some investor bargain-hunting, with the opinion that prices were oversold after another $3 plunge at the start of trade,” ANZ analysts led by Mark Pervan said in a note.
“Wider markets appear to be pricing in the potential for another long-term refinancing operation announcement in Europe, which will likely be supportive for oil markets going forward.”
Masaki Suematsu, a commodity sales manager at Newedge Japan, said commercial hedgers, such as shippers, may have bought Brent and supported prices following the $3 slump on Monday.
“The economic outlook is not so weak as the market is still expecting QE3,” Suematsu said, adding that there is also plenty of liquidity to support global markets.
The Federal Reserve is expected to start a third round of government bond buying, or quantitative easing known in markets as QE3, to support the U.S. economy.
Shares and riskier assets recovered on Tuesday from the previous day’s plunge, as sentiment improved on hopes Spain would use public funds to bolster its struggling banks, although wariness remained over Greece.
U.S. CRUDE STOCKS TO RISE
West Texas Intermediate (WTI) futures are also under pressure from rising crude inventory in the United States that is already at its highest level since 1990.
U.S. crude stocks were forecast to have risen for a seventh straight week, up 2 million barrels, as supply in Cushing, Oklahoma continued to build ahead of the Seaway pipeline reversal, a preliminary Reuters poll showed on Monday ahead of weekly inventory data.
Data from the U.S. Energy Information Administration released last Wednesday showed crude stocks reached the highest level since 1990 during the week to April 27. Cushing crude stocks were at a record of 42.96 million barrels in the week to April 27.
“The tendency for increasing oil stocks will continue for several weeks and this will pressure crude markets,” Newedge’s Suematsu said, although the contract has strong technical support at $96.30 a barrel, its 200-day moving average.
The weekly inventory report from industry group American Petroleum Institute is due late on Tuesday.
Resumption of talks between Iran and the West over Tehran’s nuclear program, eased tensions and has reduced the more than $10 a barrel risk premium built into oil prices, Suematsu said.
Also, news that Iran is accepting yuan for some of the crude it supplies to China indicate that the supply will continue, he said.
By Florence Tan
(Reporting by Florence Tan)