Bloomberg News

Oil Trades Near Two-Day High on Japan, Stimulus Outlook

June 20, 2012

Oil traded near the highest close in two days as rising imports by Japan and speculation the Federal Reserve will add stimulus to the U.S. economy countered concern Europe’s debt crisis will derail the global recovery.

Futures were little changed in New York after falling as much as 0.3 percent. Japan’s crude imports gained 7.1 percent in May from a year ago, according to data from the finance ministry. The Fed concludes a two-day meeting in Washington today, while Spain holds a bond auction tomorrow. Oil slid earlier after an industry report showed U.S. crude stockpiles dropped 550,000 barrels. That decline is less than the 1.3 million forecast to be reported by the Energy Department today.

“Oil appears to have found a level which the market collectively on balance thinks is appropriate for current risks in either direction,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The upside is associated with monetary easing but on the other hand, Spanish bonds remain disturbingly high.”

Oil for July delivery, which expires today, was at $83.98 a barrel, down 5 cents, in electronic trading on the New York Mercantile Exchange at 3 p.m. Singapore time. It rose 0.9 percent yesterday to $84.03, the highest close since June 15. The more-actively traded August contract slid 12 cents to $84.23 a barrel. Front-month prices are down 15 percent this year.

Brent oil for August settlement was at $95.53 a barrel, down 23 cents, on the London-based ICE Futures Europe exchange. The front-month price for the European benchmark contract was at a premium to West Texas Intermediate of $11.30, compared with $11.41 yesterday.

Japan Purchases

Japan’s imports of crude last month rose to 16.6 million kiloliters, or 3.37 million barrels a day, the finance ministry data showed. Utilities increased thermal power generation by 34 percent in May to compensate for a drop in nuclear generation, according to data released June 13 by the Federation of Electric Power Companies of Japan.

The U.S. central bank is forecast to announce added stimulus measures as soon as this week’s meeting, according to 12 of the 21 primary dealers who trade with the Fed.

Spain is scheduled to sell debt tomorrow maturing in 2014, 2015 and 2017. Yields on the nation’s 10-year government debt increased to 7.29 percent on June 18, the highest level since the euro was introduced in 1999. While they eased yesterday, they remained above the 7 percent level that pushed Greece, Ireland and Portugal to seek rescue packages.

U.S. Supplies

“My sense of the market is that it will remain volatile,” said Diego Parrilla, the chief investment officer of Singapore- based NARECO Advisors, a commodity asset manager. “The macro situation and Europe won’t be resolved any time soon. It’s quite possible for WTI to go down to $70 to $75 a barrel in the next few months.”

Crude stockpiles at Cushing, Oklahoma, the delivery point for New York futures, rose 625,000 barrels to a record last week, data from the American Petroleum Institute showed. Gasoline inventories increased 1.1 million barrels, compared with a forecast gain of 1 million barrels in today’s government report, according to the median estimate of 11 analysts in a Bloomberg News survey. Distillate supplies, a category that includes heating oil and diesel, slid 269,000 barrels compared with a projected 1 million rise.

The 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.

Iran Talks

Iran and world powers failed to reach a breakthrough after two days of talks in Moscow aimed at alleviating the threat of military action against the second-biggest oil producer in the Organization of Petroleum Exporting Countries.

Western powers contend Iran is hiding a nuclear-weapons program, and the U.S. and Israel have declined to discount the possibility of strikes against atomic installations.

“It’s obviously difficult to get the ramifications of the Iran talks, but certainly these things alter the risk-profit profile of traders,” said Mark Keenan, the chief investment officer of Cubit Asset Management Pte in Singapore. “When you have that risk in the market, people might be willing to hold on to a losing long position a little bit more than a losing short position, because they do have that extra stabilizer to the upside.”

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net

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


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