Bloomberg News

Oil Trades Near One-Week Low on Supply Gain, Talk of SPR

March 29, 2012

Oil fell to trade near the lowest in almost a week in New York as western countries discussed tapping emergency reserves, and after stockpiles surged in the U.S., the world’s largest crude consumer.

West Texas Intermediate futures declined as much as 0.7 percent after French Prime Minister Francois Fillon said today prospects are “good” for a U.S.-Europe agreement on a release from strategic reserves. Crude fell 1.8 percent yesterday as the Energy Department said crude inventories rose the most since July 2010. There is “no rational reason” for prices at current levels and Saudi Arabia would like to see them fall, the kingdom’s Oil Minister Ali al-Naimi said.

“The biggest reaction to the data was in WTI,” said Gerrit Zambo, a trader at Bayerische Landesbank in Munich who correctly predicted at the start of the month that prices would rise. “We’ve had a small break in the uptrend. There’s uncertainty about where we go from here. Prices aren’t high enough to be scary, and not low enough to be a buying opportunity.”

Crude for May delivery on the New York Mercantile Exchange fell as much as 69 cents to $104.72 and was at $104.84 a barrel at 1:29 p.m. London time. It dropped yesterday as low as $104.67, the least since March 22. Prices are 6.3 percent higher this year and set for a second quarterly gain.

Brent oil for May settlement on the London-based ICE Futures Europe exchange was at $123.84 a barrel, down 32 cents. The European benchmark contract was at a premium of $19 to the West Texas grade. The gap was $18.90 yesterday, the widest based on closing prices in almost two weeks.

Strategic Reserves

The U.S. and Europe may reach an agreement on using strategic stockpiles to reduce the price of oil, Fillon told France Inter Radio today. He called the prospects “good” and said not to expect any “miracles” in reducing oil prices.

Yesterday, Industry Minister Eric Besson said the U.S. government had proposed a release, and Budget Minister Valerie Pecresse said France was waiting for a report from the International Energy Agency before making a decision.

The IEA, the energy adviser to 28 countries, coordinated the sale of 60 million barrels of crude and refined products last year after supplies from Libya were disrupted.

U.S. President Barack Obama and U.K. Prime Minister David Cameron discussed the move earlier this month. France will only use its oil reserve in coordination with other countries, Finance Minister Francois Baroin said on Europe 1 radio.

‘Increasing Talk’

“There is definitely increasing talk about releasing stocks, and now they are talking so much, it’s going to be hard not to do something,” said Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, Switzerland.

The Obama administration hasn’t made a decision and no specific action has been proposed, Josh Earnest, deputy White House press secretary. The option “remains on the table,” he said yesterday.

Oil has gained this year on speculation Western sanctions aimed at halting Iran’s nuclear program will disrupt Middle East shipments. Negotiations on the nuclear program will resume next month, the Persian Gulf nation’s Foreign Minister Ali Akbar Salehi said yesterday.

“It is the perceived potential shortage of oil keeping prices high, not the reality,” al-Naimi said in an editorial published in the Financial Times, echoing comments he made to reporters on March 20. “There is no lack of supply. There is no demand which cannot be met.”

Technical Breach

Oil may extend losses in New York after settling below its middle Bollinger Band yesterday, signaling a breach of technical support, according to data compiled by Bloomberg. The lower Bollinger Band, representing the next support level, is around $103.45 a barrel today and coincides with a Fibonacci retracement indicator on the weekly chart. Buy orders tend to be clustered near technical-support levels.

U.S. crude stockpiles rose 7.1 million barrels in the week ended March 23 to 353.4 million, the highest since Aug. 26, the Energy Department report showed. Supplies were forecast to increase 2.6 million barrels, according to the median estimate of 12 analysts surveyed by Bloomberg News. Imports climbed 13 percent, the most in four months.

Gasoline inventories fell 3.54 million barrels to 223.4 million and supplies of distillate fuel, a category that includes heating oil and diesel, declined 711,000 barrels to 135.9 million, according to the report.

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

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


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