Economic worries trump lower OPEC output

A chimney emitting fire is seen between oil tanks at an oil refinery in Kawasaki, near Tokyo July 5, 2012. (REUTERS/Toru Hanai)

NEW YORK: Brent crude oil fell to near $106 per barrel Monday as signs of lower production from OPEC in July were overshadowed by concerns that expected stimulus measures from the U.S. and Europe may not be enough to shore up their fragile economies.

Supply from the 12-member Organization of Petroleum Exporting Countries fell by 450,000 barrels per day in July to 31.18 million bpd, a Reuters survey showed, as Western sanctions further cut supply from Iran and due to reduced shipments from Angola, Saudi Arabia and Libya.

“The fundamentals are looking more constructive for the second half of this year, with the supply and demand balance now close to a deficit compared to the large surplus in the first half,” said Katherine Spector, a commodity strategist at the Canadian Imperial Bank of Commerce in New York.

“The bearish factor is liquidity. Trading has been relatively slow and hedge funds and other investors don’t appear to want to commit in the current economic environment.”

Slowing growth in the United States, the world’s top oil consumer, has triggered expectations of stimulus measures from the Federal Reserve, which meets Tuesday and Wednesday.

European Central Bank President Mario Draghi also promised last week to do what it takes to protect the euro, raising expectations of new policy measures to solve the debt crisis when the ECB meets Thursday.

But analysts say markets may be hoping for too much.

“Speculation over Central Bank action looks like it has gone too far,” said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt. “The euro has already begun to retreat and oil has also started to weaken. The move upward seems exaggerated.”

Brent crude for September delivery was down 32 cents at $106.15 per barrel by 12:55 p.m. EDT (1655 GMT). U.S. September crude was down 40 cents at $89.73.

If prices finish lower Monday, it would mark the end of four consecutive days of rises. Brent has risen more than 8 percent in July while U.S. crude has gained around 6 percent, supported largely by hopes of more economic stimulus.

Brent’s premium against U.S. crude was little changed at $16.42, after closing at $16.34 Friday.

Trading volumes were light, with Brent crude dealings down 64 percent from its 30-day average and U.S. crude down 58 percent from its 30-day average, according to Reuters data.

Thursday’s ECB meeting is in sharp focus, given the threat the long-running eurozone crisis poses to the global economy.

Optimism of some sort of ECB action was evident across some markets Monday, with European shares rising to four-month highs and global stocks at their highest in over three weeks. But the euro retreated after gaining last week.

OPEC’s production has declined since it pumped 31.75 million bpd in April, the highest since September 2008, based on Reuters surveys. The biggest drop in supplies in July came from Iran, whose crude is subject to a European Union embargo that started on July 1 barring EU insurance firms from covering Iran’s exports.

Iran’s output fell by 150,000 bpd to 2.8 million bpd, the lowest level in more than two decades, according to figures from the U.S. Energy Information Administration.

Saudi Arabia trimmed supply slightly in July because of lower demand from some customers, such as in the United States, sources in the survey said. It still kept output at 10 million bpd, near the highest level in decades.

Oil prices have found support from escalating tensions in the Middle East, with rising violence in Syria threatening to further destabilize the region.

Iran is still in a face-off with the West over its nuclear program.

A version of this article appeared in the print edition of The Daily Star on July 31, 2012, on page 5.




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