Monday, Jun 13, 2011
By David Bird
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Losses in U.S. crude oil futures prices deepened after midday Monday, with concerns over weak U.S. oil demand sapping strength from the surging Brent crude oil market.
Traders said many investors appeared to have been taking funds out of light, sweet crude oil on the New York Mercantile Exchange and switching into ICE Brent crude. The move into the smaller market helped push Brent futures up sharply compared with U.S. futures.
The price spread between Nymex July light sweet crude oil and ICE Brent crude Friday settled at a record $19.49 a barrel. The spread traded above $21 a barrel earlier Monday, as Brent topped $120 a barrel, a level it hasn't settled above since May 4.
But persistently weak U.S. crude broke through last Tuesday's intraday low of $97.74 a barrel and tumbled to $96.13 a barrel, the lowest level since May 20. Nymex crude hasn't settled below $97 since May 17.
Nymex July crude recently was down $2.25 at $97.04. The drop followed a fall of $2.64 a barrel Friday that was the biggest drop in a month. Brent recently was down 97 cents at $117.81 a barrel, after hitting $120.25 a barrel earlier.
Tim Evans, analyst at Citi Futures Perspective, said he is "astounded" that the spread between the benchmarks was widened so much. "It's trading as if it is two completely different commodities." Evans said commodity investment funds have pushed up Brent because it is the "hot market," when fundamentals call for Brent to trade near $90 a barrel compared with $85 for the U.S. benchmark.
Many trading houses have said Brent could climb to $120-$130 a barrel as supplies of internationally traded light, sweet crude oil can't meet expected rising demand this year. The Libyan civil war has cut about 1 million barrels a day of this grade of oil from the market, while production from the North Sea is still hobbled by recent problems at the Buzzard field, which is limiting available Brent crude this month. Shell on Monday said it had to declare force majeure of shipments of Nigerian crude in June and July, which further tightens Brent-like barrels.
Saudi Arabia, the world's biggest oil exporter, said it will boost output, despite the failure of the Organization of Petroleum Exporting Countries to approve such a move. But new oil from the Saudis doesn't match the quality of the lost Libyan supplies.
Forecasts call for global oil demand to rise in the second half of the year, but in the U.S. demand has been little changed from a year ago, while inventories for crude oil and main products such as gasoline remain above five-year averages when measured against current demand. Crude oil stocks across the U.S. are at their highest level for early June in 21 years, even as inventories at Cushing, Okla.--the delivery point for the Nymex contract--have fallen to their lowest level since February.
Nymex July reformulated gasoline futures were down 5.59 cents at $2.9618 a gallon, while July heating oil was 4.04 cents lower, at $3.0647 a gallon.
-By David Bird, Dow Jones Newswires, 1-212-416-2141; david.bird@dowjones.com
(END) Dow Jones Newswires
June 13, 2011 13:34 ET (17:34 GMT)
