Bloomberg News

Oil Trades Near Highest in a Month as Goldman Sees ‘Upside Risk’

October 19, 2011

Oct. 19 (Bloomberg) -- Oil traded near the highest price in more than a month in New York after Goldman Sachs Group Inc. predicted “upside” potential, amid signs U.S. crude stockpiles are increasing less rapidly than previously forecast.

Futures were little changed after advancing 2.3 percent yesterday. Energy Department data today may show that supplies climbed 2 million barrels. Yesterday’s report by the industry- funded American Petroleum Institute indicated they dropped for a third week. Goldman Sachs said an improving economic outlook in Europe and declining crude supplies may present “a real upside risk” to Brent prices.

“The market certainly drew some support from pronounced crude and product draws in the API data, as well as more optimism creeping back in about the euro-zone bailout,” said Andrey Kryuchenkov, an analyst at VTB Capital in London, who predicts prices will end the year little changed from current levels. “Libya will come back on line, but not especially fast, and geopolitical risks surrounding Iran will give support.”

Crude for November delivery on the New York Mercantile Exchange was at $88.29 a barrel, down 5 cents, at 1:19 p.m. London time. The contract yesterday closed at $88.34, the highest settlement since Sept. 15. The more-actively traded December contract was down 6 cents at $88.47. Front-month prices are down 3.4 percent this year.

Brent oil for December settlement was at $110.73 a barrel, down 42 cents, on the London-based ICE Futures Europe exchange.

Brent ‘Upside Risk’

Brent futures, which dropped 12 percent in London trading in August and September, may fall “too low” because of “uncertainty” over the economy, Goldman Sachs said in a report. The so-called backwardation in Brent contracts, where prices for soonest delivery are higher than those for later months, creates an incentive to draw from inventories, Goldman Sachs said.

“Persistent uncertainty over Europe would likely continue to increase the upside risk to Brent crude oil prices,” David Greely, a managing director for Goldman Sachs based in New York, said in the report. “Destocking makes the market increasingly vulnerable to upside demand surprises or supply shortfalls.”

German Chancellor Angela Merkel said yesterday a European Union summit on Oct. 23 will be an “important step” though not the final one to solve the region’s sovereign debt crisis.

U.S. crude supplies fell 3.1 million barrels last week, the API said yesterday. The Energy Department’s figures today were forecast to show they climbed a second week, based on the median of 13 analyst estimates in a Bloomberg News survey.

Product Stockpiles Decline

Gasoline inventories dropped 1.6 million barrels, according to API data. They were forecast to slip 1.5 million barrels in the Bloomberg survey. Distillate stockpiles, including heating oil and diesel, decreased 2.2 million barrels compared with an estimate for a 1.5 million decline.

The industry-funded API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

“The market’s just looking for some sort of price direction,” said David Lennox, a resource analyst at Fat Prophets in Sydney who predicts prices will trade at $80 to $90 a barrel. “Traders aren’t willing to push prices higher, given the weak economic outlook in the U.S. and what’s happening in Europe.”

--With assistance from and Yee Kai Pin in Singapore. Editors: John Buckley, Raj Rajendran

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net Grant Smith in London at gsmith52@bloomberg.net

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


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