|Brent slips to $106, economy overshadows lower OPEC output|
|Monday, 30 July 2012 14:48|
Brent crude oil fell to $106 per barrel on Monday as signs of lower production from OPEC in July were overshadowed by concerns expected stimulus measures from the United States and Europe may not be enough to shore up their fragile economies.
Supply from the 12-member Organization of the Petroleum Exporting Countries (OPEC) fell by 450,000 barrels per day (bpd) 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, 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 on 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 on 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, oil analyst at Commerzbank in Frankfurt.
"The euro has already begun to retreat and oil has also started to weaken. The move upwards seems exaggerated."
Brent crude was down 52 cents at $105.95 per barrel by 11:35 am EDT (1535 GMT). U.S. crude was down 40 cents at $89.73.
If prices finish lower on 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.
Thursday's ECB meeting is in sharp focus, given the threat the long-running euro zone crisis poses to the global economy.
Optimism of some sort of ECB action was evident across some markets on 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 OUTPUT FALLS
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, fuelling uncertainty about supply in the oil markets. The West insists Tehran is trying to develop a nuclear bomb, but the Islamic republic has vehemently denied this assertion.