Bloomberg News

Oil Trades Near One-Week Low on Supply; Goldman Sees $130 Brent

March 15, 2012

Oil traded near the lowest price in more than a week as signs of rising U.S. stockpiles were balanced by concern that spare production capacity may be insufficient to cover any supply disruption in the Middle East.

Futures were little changed after falling 1.2 percent yesterday. Inventories at Cushing, Oklahoma, the delivery point for West Texas Intermediate oil, reached a nine-month high, the Energy Department said. Goldman Sachs Group Inc. said global spare capacity is at “dangerously low levels” and oil-market fundamentals will tighten this year, pushing Brent crude to $130 a barrel in 2013. Saudi Arabia will make up any “perceived or real” shortfall, Oil Minister Ali al-Naimi said in Kuwait.

“The market will hold here, or move higher,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who last month correctly predicted Brent’s rise above $120 a barrel. “Iran shows every sign of remaining a source of tension, the struggle in Syria looks like it will be a prolonged stalemate, and the extent to which Saudi can fill the supply shortfall, and for how long, is unknown.”

Crude for April delivery was at $105.62 a barrel, up 19 cent, in electronic trading on the New York Mercantile Exchange at 12:17 p.m. London time. The contract yesterday dropped $1.28 to $105.43 a barrel, the lowest close since March 6. Prices are 7 percent higher this year.

Brent oil for April settlement was at $124.93, down 4 cents, on the London-based ICE Futures Europe exchange. The contract expires today. The more active May futures were down 6 cents at $124.52. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $19.31, compared with $19.54 yesterday, the widest gap since Oct. 24.

Crude Stockpiles

U.S. crude supplies nationwide rose 1.8 million barrels last week to 347.5 million barrels, the highest level in six months, the Energy Department said yesterday. They were forecast to gain 1.6 million barrels, according to the median of nine analyst estimates in a Bloomberg News survey. The increase was the seventh in eight weeks.

Gasoline stockpiles fell 1.4 million barrels, the Energy Department report showed. They were forecast to decline by 1 million. Distillate inventories, a category that includes diesel and heating oil, slid 4.7 million barrels, compared with a projected drop of 1.5 million.

Markets Balanced

Oil markets are balanced and have ample output and refining capacity, Saudi Arabia’s al-Naimi said yesterday at the biennial International Energy Forum. Market volatility is caused by speculation, he told the meeting of producers and consumers. U.S. Energy Secretary Steven Chu said he is “enthusiastic” about Saudi willingness to produce more oil to help offset the effect of economic sanctions on Iran.

“We expect prices to average $130 in 2013, so we expect them to rise higher between now and then,” said Goldman Sachs’s New York-based head of energy research, David Greely. “On a 12- month horizon we see Brent prices at $127.50.” Brent averaged $110.78 a barrel in 2011 and $80.32 in 2010.

Declining production rates at oilfields in the Organization of Petroleum Exporting Countries have “accelerated precipitously” and will continue to worsen, Bank of America Corp. said today in an e-mailed report.

The European Union is seeking to ban imports of products including petroleum oils and natural gas from Iran and to bar global bank-transfer messaging companies from providing services to entities subject to EU sanctions, according to a draft regulation obtained by Bloomberg.

‘Unreasonable Measures’

Iran’s oil exports will probably decline by 50 percent when the sanctions take full effect in July, according to the International Energy Agency. Shipments will fall by at least 800,000 barrels a day, David Fyfe, head of the IEA’s market and industry division, said by phone from Paris, citing discussions with market participants.

The “unreasonable measures” will raise costs for governments pursuing them and bolster Iran’s oil revenue, the Islamic republic’s oil minister, Rostam Qasemi, said yesterday at the IEF meeting in Kuwait.

Oil may extend its decline in New York after breaching technical support yesterday, according to data compiled by Bloomberg. On the daily chart, futures settled below a symmetrical triangle formation going back almost three weeks. Investors tend to sell contracts on such a so-called downside breakout. The top of the triangle, representing technical resistance, was about $107.70 yesterday.

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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