Bloomberg News

Oil Rises From 4-Month Low on U.S. Demand; Brent Premium Widens

June 28, 2011

June 28 (Bloomberg) -- Oil extended gains in New York on speculation U.S. fuel demand will increase and as OPEC clashed with the International Energy Agency about the need for more oil. Brent crude’s premium to New York oil widened.

Crude climbed as much as 1.7 percent after trading near its lowest price in more than four months before a report today that may show a rebound in consumer confidence in the U.S. The price spread between Brent and New York-trade West Texas Intermediate widened, as half of the IEA-administered emergency oil-stock release will be in the U.S. The Organization of Petroleum Exporting Countries’ secretary-general and the group’s president said separately yesterday there was no need for IEA action.

“Sooner or later we had to see a rebound, and oil will remain volatile in the short-term because of the disagreements between the IEA and OPEC about market fundamentals,” said Andy Sommer, a senior analyst at EGL AG in Dietikon, Switzerland. “The Brent-WTI spread is widening because a large part of the IEA stock release will be from the U.S.,” depressing WTI prices, he said.

Crude for August delivery rose as much as $1.58 cents to $92.19 a barrel in electronic trading on the New York Mercantile Exchange. It was at $92.10 at 1:33 p.m. London time. Yesterday, the contract fell 0.6 percent to $90.61, the lowest settlement since Feb. 18. Futures have gained 16 percent in the past year.

Brent Backwardation

Brent oil for August settlement on the London-based ICE Futures Europe exchange climbed as much as $2.25, or 2.1 percent, to $108.24 a barrel. The European benchmark contract was at a premium of $16.07 to WTI. On June 15, the difference between front-month contracts reached a record $22.29.

BNP Paribas SA said investors could benefit from betting that near-term Brent crude futures will revert to a premium over longer-dated contracts as the effect of the IEA’s stockpile release wears off.

Brent futures may return to backwardation, a structure in which prompt prices are higher than later contracts, the Paris- based bank’s analysts, led by Harry Tchilinguirian, said in a report yesterday. The IEA’s plan to sell about 2 million barrels a day of oil over 30 days will be insufficient to make up for supply disruption in Libya, the bank said.

Crude in New York fell 4.6 percent on June 23, the most in six weeks, after the IEA said it will release 60 million barrels in emergency reserves. OPEC Secretary General Abdalla El-Badri and President Mohammad Aliabadi said in Vienna yesterday there’s no need for such action.

Partial Draw

It is “highly doubtful” that all the stocks will be drawn, partly because of sufficient supplies of gasoline and fuel oil, according to a report by JBC Energy GmbH. From 50 to 60 percent of the release will be realized, the report said.

The Conference Board’s index of U.S. consumer confidence will climb to 61 in June from 60.8 in May, which was the lowest in half a year, according to the median estimate of 69 economists surveyed by Bloomberg News. The report is scheduled for release at 10 a.m. in New York.

U.S. crude inventories fell as refiners boosted gasoline output before the Fourth of July holiday, according to the median estimate of 10 analysts polled before an Energy Department report tomorrow. Supplies dropped 1.5 million barrels, or 0.4 percent, to 362.3 million in the seven days ended June 24. The industry-funded American Petroleum Institute will report its own data today.

Fibonacci Retracement

Crude also rose after prices held above a long-term support level on weekly technical charts. Futures in the past two sessions traded below $89.84 a barrel before settling higher. That’s the 50 percent Fibonacci retracement of the drop to $32.40 in December 2008 from an all-time high of $147.27 in July that year, according to data compiled by Bloomberg. A breach of technical support usually means prices will continue to fall.

“Ninety dollars seems to be quite firm support,” said Tetsu Emori, a commodity-fund manager at Astmax Ltd. in Tokyo. “Current fundamentals make selling below $90 too risky.”

A low-pressure weather system in the Bay of Campeche has a 50 percent chance of becoming the Atlantic’s first named storm this year, according to the U.S. National Hurricane Center in Miami. The hurricane season runs from June 1 to Nov. 30.

Oil is headed for the first quarterly drop in a year on speculation global economic growth will slow and damp fuel demand. New York futures are down 15 percent since March 31 and Brent has lost 9.8 percent.

--Editors: John Buckley, Steve Voss

To contact the reporters on this story: Ayesha Daya in Dubai at adaya1@bloomberg.net;

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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