Crude gains ground on larger than expected US crude stock fall

20 July 2011 10:20  [Source: ICIS news]

SINGAPORE (ICIS)--Crude futures rose by more than $1/bbl on Wednesday, buoyed by a larger than expected fall in US crude stocks and a weaker US dollar.

At 08:50 GMT, September Brent on London’s ICE futures exchange was trading at $118.08bbl, up by $1.02/bbl from the previous close. Earlier, the North Sea benchmark rose to a session high of $118.27/bbl, up by $1.21/bbl.

August NYMEX light sweet crude futures were trading at $98.52/bbl, up by $1.02/bbl from the previous close. Earlier, the contract strengthened to an intra-day high of $98.67/bbl, up by $1.17/bbl.

The US dollar lost ground against the euro and other leading currencies which made dollar-denominated commodities, like crude, more attractive to international investors.

Weekly US inventory data from the industry body the American Petroleum Institute (API) revealed a much larger than expected 5.2m bbl fall in US crude stocks.

The decline was attributed to an increase in refinery operating rates which rose 1.2% to 86.1%. Higher US refinery runs also contributed to larger than expected builds in gasoline and distillate stocks.

Traders now await the release of the more widely followed official US government weekly inventory data from the Energy Information Administration (EIA) which will be released later on Wednesday.

Worries over US and European debts also eased. US President Barack Obama claimed further progress in deadlocked talks over US debt levels with a group of both Republican and Democratic senators proposing a compromise plan to cut the budget deficit while also raising the US debt ceiling.

The markets also await an emergency meeting of eurozone leaders on Thursday to resolve the Greek debt crisis.

However, there remain disagreements on the course of action.

German Chancellor Angela Merkel wants private investors to contribute to any further Greek rescue fund by taking a cut in the yield of Greek bonds.

However, the European Central Bank (ECB) is against such a plan as it could be viewed as an effective default by Greece.

Crude prices were also buoyed by no clear signs that the International Energy Agency (IEA) intends to undertake a second release of supply from emergency oil reserves, after the present scheme to release 60m barrels of oil over 30 days ends later this week.

The IEA stock release was prompted by concerns over the impact on the global economy of the continued absence of 1.5m bbl/day of Libyan oil supplies amid expectations of raised demand in the third quarter of 2011.

The IEA said in it recent monthly report that it expects world oil demand to rise to 89.5m bbl/day in 2011, up 1.2m bbl/day on the previous year.

Non-OECD demand from the developing world, principally from China, is expected to rise by 1.6m bbl/day while demand from developed nations which are represented by the IEA is expected to fall by 400,000 bbl/day.

($1 = €0.71)

By: James Dennis
+65 6780 4359

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