Bloomberg News

Oil Declines, Paring Biggest Monthly Increase Since May 2009

October 31, 2011

Oct. 31 (Bloomberg) -- Oil fell in New York on speculation demand will falter after the biggest monthly gain in more than two years and a surge in the dollar. Brent’s premium to U.S. crude was near its lowest in almost four months.

Futures slid as much as 1.2 percent after Japan took steps for the third time this year to weaken the yen against the dollar, making commodities priced using the U.S. currency less attractive to investors. Crude prices at $80 to $100 are “reasonable,” the United Arab Emirates’ energy minister said in Singapore today. Oil is up 17 percent in October, the biggest monthly increase since May 2009.

“Oil is down with other commodities as the dollar strengthens,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. who correctly predicted prices would recover from last month’s slump. “But I think it will go up again, as we head into the winter with low inventories. If it’s especially cold, Brent may climb as high as $120.”

Crude for December delivery dropped as much as $1.11 to $92.21 a barrel in electronic trading on the New York Mercantile Exchange and was at $92.38 at 12:46 p.m. London time.

Brent crude for December settlement was at $109.53 a barrel, down 0.7 percent, on the London-based ICE Futures Europe exchange. The contract traded at a premium of $16.83 to New York futures after narrowing to $16.08. It slipped to $16.02 a barrel on Oct. 25, the lowest since July 6.

Yen Slide

The yen dropped 2.9 percent against the dollar after Japan stepped into foreign-exchange markets to weaken the currency after its gains to a postwar record threatened an export-led economic recovery.

New York’s West Texas Intermediate also fell after nearing its 200-day moving average, at $94.78 a barrel today, according to data compiled by Bloomberg. A failure to breach technical resistance typically means prices will change direction.

Oil at $80 to $100 a barrel is “reasonable” and will continue to encourage the building of additional spare production capacity, U.A.E. Energy Minister Mohamed al-Hamli said today. It is too early to discuss what the Organization of Petroleum Countries is likely to do when it meets to decide oil- production policy in December, he said.

Iran’s Governor to OPEC, Mohammad Ali Khatibi, said supply and demand in world oil markets is balanced and there is no need for an emergency meeting of the producer group, according to the state-run Iranian Students News Agency yesterday. OPEC plans to meet next on Dec. 14 in Vienna.

Brent Premium

Brent’s premium to WTI may continue to narrow as Libyan oil production rises, increasing supplies of light, sweet crude, according to Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney.

“That spread should come back to more traditional levels the more production we get out of Libya,” Barratt said. Brent’s average premium to West Texas Intermediate was 63 cents in 2010, according to data compiled by Bloomberg.

Libya’s interim government, the National Transitional Council, said Oct. 20 that it plans to expand production to about 1.7 million barrels a day within 15 months. The Libyan rebellion that erupted in February caused output from Africa’s largest reserves to drop 97 percent to 45,000 barrels a day in August, according to a Bloomberg News survey.

Hedge Fund Positions

Hedge funds increased bullish bets on WTI oil to the highest level since May on expectations that the gap between the U.S. benchmark price and Brent will continue to narrow.

Money managers boosted net-long wagers in futures and options by 15 percent in the week ended Oct. 25, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Oct. 28. The premium of Brent over WTI shrank 22 percent during the period covered by the report as U.S. oil delivered to storage in Cushing, Oklahoma, rose 5.5 percent and London crude fell 0.2 percent.

In London, hedge funds and other money managers cut bullish bets on Brent crude by 11 percent in the week ended Oct. 25, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 48,408 contracts, the London-based exchange said today in its weekly Commitment of Traders report. Net-long positions fell by 5,800 contracts, from 54,208 a week earlier.

--Editors: John Buckley, Rob Verdonck

To contact the reporter on this story: Ann Koh in Singapore at akoh15@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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