Bloomberg News

Brent Oil Rises as Plunge Below $90 May Be Excessive

June 22, 2012

Brent crude rose in London, paring a second weekly decline, on speculation that its plunge to an 18- month low below $90 a barrel was excessive.

Brent’s 14-day relative strength index, a measure of how quickly prices have risen or dropped, was at 17.4 today. A reading of 30 or less can suggest prices have tumbled too quickly. Brent earlier declined to its lowest since December 2010 after German business confidence fell to the weakest level in more than two years in June, and the Federal Reserve Bank of Philadelphia’s economic index yesterday signaled the biggest contraction in manufacturing in almost a year.

“It’s time for a rebound,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG (RBI) in Vienna. “Below $90 per barrel, the marginal cost projects are not economically viable any more. So some oil companies will have to cut capital expenditure if prices fall further.”

Brent oil for August settlement rose 71 cents, or 0.8 percent, to $89.94 a barrel at 1:34 p.m. on the London-based ICE Futures Europe exchange, after sliding 74 cents to $88.49, the lowest since Dec. 2, 2010. The contract has fallen 7.9 percent this week. The European benchmark’s premium to West Texas Intermediate in New York was at $11.63 after closing at $11.03 yesterday, the narrowest gap since January.

WTI for August delivery advanced 11 cents, or 0.1 percent, to $78.31 a barrel in electronic trading on the New York Mercantile Exchange. It earlier fell as much as 64 cents to $77.56 a barrel, the lowest since Oct. 5, and has lost 6.8 percent this week.

Brent in Contango

The August Brent contract traded at a 33-cent discount to September. It’s the fifth consecutive day that the front-month contract has been cheaper than the second month, a market structure known as contango, which typically signals an excess of supply relative to demand in the short-term.

Prices may fall in New York next week on signals that global economic growth is slowing, a Bloomberg survey showed. Fourteen of 27 analysts, or 52 percent, forecast crude will decline through June 29. Nine respondents, or 33 percent, predicted that futures will be little changed and four said there will be an increase.

The Munich-based Ifo institute said today its German business climate index, based on a survey of 7,000 executives, dropped for a second straight month to 105.3 from 106.9 in May. That’s the lowest reading since March 2010. Economists predicted a decline to 105.6, according to the median of 39 estimates in a Bloomberg News survey.

Global Manufacturing Declines

The Federal Reserve Bank of Philadelphia’s factory index dropped to minus 16.6 in June, the lowest reading since August. A gauge of euro-region manufacturing fell to 44.8, the weakest in three years, London-based Markit Economics said yesterday in an initial estimate. The preliminary reading for a Chinese purchasing managers’ index from HSBC Holdings Plc and Markit was 48.1, signaling an eighth month of contraction.

A storm cluster just north of the Yucatan Peninsula is becoming better defined and may move into the central Gulf of Mexico as Tropical Storm Chris weakens off Newfoundland, the National Hurricane Center said.

A swath of rain and storms across the Caribbean from Mexico to Cuba and Florida has a 70 percent chance of forming into a tropical cyclone within 48 hours, the Miami-based center said in a 5 a.m. Atlantic time advisory. Floods and heavy rain may occur from southern Florida to the Yucatan through tomorrow.

Oil in New York has technical support along its lower Bollinger Band on the 30-day chart, data compiled by Bloomberg show. Futures yesterday halted their decline near the indicator, which is at about $77.37 a barrel today. Buy orders tend to be clustered near chart-support levels.

To contact the reporter on this story: 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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