Bloomberg News

Oil Rebounds From Two-Week Low on Outlook for European Economy

December 13, 2011

Dec. 13 (Bloomberg) -- Oil rebounded from a two-week low after a report showing improved investor confidence in Germany and a debt sale in Spain that exceeded targets countered concern that European credit may be downgraded.

Crude advanced as much as 0.9 percent after the ZEW Center for European Economic Research said German investor confidence improved for the first time in 10 months. Spain’s sale of 12-and 18-month bills topped the Treasury’s maximum target. Futures fell earlier after Moody’s Investors Service said yesterday it will review all European Union states’ credit ratings and the International Energy Agency cut its 2012 oil-demand forecast.

“We’ll see a little bit of a bounce today because there’s some relief over the economic data that’s coming out,” said Michael Hewson, a markets analyst at CMC Markets in London.

Crude for January delivery on the New York Mercantile Exchange rose as much as 88 cents to $98.65 a barrel and was at $98.45 at 1:36 p.m. in London. Yesterday, the contract slid $1.64 to $97.77, the lowest settlement since Nov. 25. Prices are 7.7 percent higher this year after rising 15 percent in 2010.

Brent oil for January settlement on the London-based ICE Futures Europe exchange was up $1.06 at $108.32 a barrel. The European benchmark contract was at a premium of $9.87 to New York-traded West Texas Intermediate grade. The spread was a record $27.88 on Oct. 14.

OPEC Meeting

The 12-nation Organization of Petroleum Exporting Countries meets in Vienna tomorrow. Most of the group’s members agree there’s no need to change production or targets, according to Kuwait’s oil minister, Mohammad al-Busairy, who said yesterday “the market is stable.”

The IEA said in today’s monthly market report that OPEC will need to produce less crude next year than previously forecast. Global demand will average 90.3 million barrels a day next year, 200,000 barrels less than the agency’s November estimate. It’s the fourth cut in the IEA’s 2012 forecast.

Tougher sanctions on Iran may lead to higher global crude prices and a decrease in output capacity for OPEC’s second- largest oil producer, the IEA said in the report.

Speculation that a ban may be imposed on Iranian oil is underpinning crude prices, Hewson said, while concern that a sluggish economy may further crimp energy demand is keeping prices from rising too high. Brent crude will trade in a range from $105 a barrel to as high as $115 over the next six months, he said, while WTI will sell for between $95 and $103 a barrel.

Quota Compliance

Iran, OPEC’s second-biggest producer, expects oil prices to fall next year unless members comply with quotas and rein in output to accommodate rising shipments from Libya and Iraq, the country’s state-run Fars news agency said, citing Iran’s OPEC Governor Mohammad Ali Khatibi. The 11 members subject to the three-year-old quotas exceeded them by 2.81 million barrels a day last month, according to a Bloomberg survey.

OPEC should retain flexibility to adjust output higher or lower in coming months because of political turmoil in some countries and concern the global economy may slow, said a delegate, who spoke on condition of anonymity because discussions haven’t started.

Saudi Arabian Oil Minister Ali al-Naimi said yesterday he is happy with OPEC’s current production levels amid demand from “all over.” The kingdom, the world’s largest crude exporter, pumped 10.047 million barrels a day in November, he said.

The Energy Department may say tomorrow crude supplies fell for the first time in three weeks, a separate Bloomberg survey showed. The industry-funded American Petroleum Institute in Washington will publish its own data today.

Crude inventories in the U.S., the world’s biggest oil consumer, decreased 2.5 million barrels in the week ended Dec. 9, according to the median estimate of 10 analysts surveyed by Bloomberg News. Gasoline stockpiles probably climbed 1 million barrels, after climbing for four weeks. Distillate-fuel supplies, including diesel and heating oil, are also expected to have gained 1 million barrels, the survey shows.

--With assistance from Yee Kai Pin in Singapore. Editors: John Buckley, Bruce Stanley

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net; Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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