Oil Slips Towards $124 On Federal Reserve Comments, Saudi Arabia Supply

LONDON/SINGAPORE: Oil prices dipped towards $124 a barrel on Wednesday on worries demand for crude could be curtailed after theUScentral bank dashed hopes of further economic stimulus and newsSaudi Arabiawould likely keep output high in the event of a stock release.
Industry data showing a larger-than-expected rise in crude inventories in theUnited States, the world’s top oil consumer, also pressured prices, but losses were capped by further disruption in exports from theNorth Sea.
Brent crude futures fell by 40 cents to $124.46 a barrel by 0940 GMT, after earlier touching a low of $124.23.
US crude futures lost 79 cents to $103.22, after falling by more than $1 in the previous session.
Oil prices have been volatile this week in thin volumes, analysts said, with Brent rallying by two per cent on Monday alone but falling by nearly 1 per cent the next day.
“We expect yet another jittery trading session today as volumes remain light with both benchmarks stuck below this week’s highs,” said Andrey Kryuchenkov at VTB Capital in a note.
Minutes from the Federal Reserve policymakers’ meeting in March released overnight revealed reduced appetite for further quantitative easing amid timid improvements in theUSeconomy.
“QE has had a clear effect on some of the commodity markets over the last few years,” said the head of Natixis’ commodity research Nic Brown.
Between the Fed’s announcement of a second round of quantitative easing in November 2010 until its end in June 2011, Brent futures rallied by around 35 per cent.
“It’s no surprise that with the Fed dampening hopes of QE, gold is down this morning. Its effect on oil markets has been less pervasive but still important,” Brown added.
In the absence of further money printing, the US dollar index inched up. A stronger dollar can render greenback denominated commodities such as gold and oil more expensive to other currency holders.
In Europe, eyes were on auctions from struggling southern euro zone members, withSpaintargeting a bond issue of around 3.5 billion euros ($4.65 billion), whilePortugallooked to issue its longest-dated debt since it took a bailout.
“The outcome could be a good indicator of market sentiment: it could be a sign of whether the market believes if the sovereign debt crisis is over or not, and could impact risk appetite or aversion,” said Commerzbank’s Carsten Fritsch.
Oil prices were also pressured after industry sources saidSaudi Arabiawas likely to maintain high oil production if consumer countries released strategic oil reserves, but would not seek to lure buyers for more oil by discounting its crude.
“We look at what the Saudis are doing and believe they’re genuine in their effort to bring prices back down from recent highs,” Natixis’ Brown said. “They made a tactical mistake in 2011 in not appreciating that IEA (International Energy Agency) countries would release stocks, and this time around they’re ensuring they’re the arbiter.”
Overnight in theUnited States, data from industry group American Petroleum Institute (API) showed crude oil inventories in the country rose by 7.8 million barrels in the week to March 30, a much larger increase than expected.
The US Energy Information Administration’s crude inventory report is due out later on Wednesday.
Despite the drive to flush more oil into the market, actual and potential disruptions continue to put a floor under prices, with at least seven cargoes of North Sea Forties crude loading in April being delayed following production problems.
A ban on European insurance cover for Iranian oil exports from July 1 is also threatening to curtail shipments and raise costs for major buyers.JapanandSouth Koreahave lobbied for exemptions, but insurance and shipping executives say a complete ban now looks likely.
Meanwhile, Oil recovered in Asian trade today after sharp overnight losses triggered by a larger-than-expected jump in US crude stocks, analysts said.
New York’s main contract, West Texas Intermediate crude for delivery in May, gained 49 cents to $101.96 per barrel while Brent North Sea crude for May settlement was up 33 cents at $122.67.
Investor sentiment had taken a hit after the US Department of Energy said yesterday in its weekly report that national crude reserves soared by nine million barrels in the week ending March 30.
That was a far bigger increase than the average estimate of 1.9 million barrels, according to analysts polled by Dow Jones Newswires.
Jonathan Barratt of Barratt’s Bulletin commodity research firm said today’s recovery in crude prices reflected an improvement in investor sentiment towards theUSeconomy which is the world’s number one oil user.
“The important thing to note is regardless what the numbers say is that the Fed has withdrawn any chance of a QE3,” Barratt told AFP fromSydney.
“What this tells us is the Fed is comfortable with theUSeconomy. The market is coming to a little bit more common sense.”
Minutes from the US Federal Reserve’s March 13 policy meeting published Tuesday eased the likelihood of a third round of quantitative easing (QE) to boost growth in the world’s largest economy.
The Federal Reserve has previously introduced two rounds of massive stimulus spending in an effort to kick-start theUSeconomy.