|Oil steady near three-month highs on supply worries|
|Thursday, 16 August 2012 12:52|
Oil gave up its early gains on Thursday after a survey showed weakening U.S. business conditions but losses were limited by a firmer euro, worries over possible disruptions to supply from the Middle East and a drop in U.S. oil inventories.
Global crude oil benchmark Brent has risen more than a third in less than two months on escalating worries about a conflict over Iran's nuclear program and as investors hope for more stimulus measures from central banks, which would boost commodities.
A fall in production in the North Sea during September due to maintenance has also tightened supply in Europe and helped push up the price of light, sweet crudes for immediate delivery.
Brent futures were down 22 cents at $116.03 a barrel at 1510 GMT, after ending Wednesday up $2.22 at the highest settlement since May 2.
U.S. crude was up 53 cents at $94.86 a barrel, after rising 90 cents to its highest settlement since May 14.
Manufacturing activity in the U.S. mid-Atlantic region shrank in August for the fourth straight month, a worrisome sign for economic recovery although the pace of contraction eased.
The Philadelphia Federal Reserve Bank said its business activity index was at minus 7.1 in August, a smaller contraction than registered in July. Economists were expecting a reading of minus 5.
The U.S. data led to a fall in the dollar against the euro, and a weaker dollar makes oil more affordable for holders of other currencies.
"The data seems to have inspired a euro rally, which in turn has helped commodities, in particular oil, up a bit. Oil seems to be inspired by a steady technical trend to the upside," said Tony Machacek, an oil futures broker at Jefferies Bache.
Reflecting the deepening crisis in the Middle East, the Organisation of Islamic Cooperation (OIC) on Thursday suspended Syria's membership at a summit of Muslim leaders in Mecca, citing President Bashar al-Assad's violent suppression of the Syrian revolt.
"As long as it keeps focusing on the chances of war in the Middle East and the possibility of quantitative easing in the United States, this market will stay strong," said Carsten Fritsch, a commodity analyst at Commerzbank in Frankfurt.
"But the market has been overbought for a while, and these levels are not justified by fundamentals, which show plenty of oil available and demand growth slowing."
Data on Wednesday showing a sharp fall in stocks of oil in the world's top consumer, the United States, has also exacerbated global supply worries.
U.S. crude stockpiles fell more than expected last week, slipping 3.7 million barrels to 366.16 million barrels, the Energy Information Administration reported, despite a modest rise in crude imports as plant utilisation remained high.
Analysts had forecast a drop of 1.7 million barrels.
Inventories of refined products were mixed, with gasoline stocks down 2.37 million barrels against an expected 1.5 million barrels. Distillates, which include diesel and heating oil, rose 677,000 barrels versus a forecast decline of 200,000 barrels, the EIA said.
Crude stocks may have also declined in part due to the fall in output because of hurricanes in the United States.
"This could be due to plant utilisation as they say, but it is certainly affected by market disruptions from bad weather in the U.S.," Natalie Robertson, an analyst at ANZ, said. "This would be taken as positive for crude in the coming weeks."
Investors are looking out for further indications of monetary stimulus measures in the United States. Consumer prices there were flat in July for a second straight month, and the year-on-year increase was the smallest in more than 1-1/2 years, giving the Federal Reserve room to tackle high unemployment.
Brent will gain more to $117.96 per barrel, as indicated by a Fibonacci retracement analysis, while U.S. oil is expected to break resistance at $95.03 and rise towards $96.87, according to Reuters technical analyst Wang Tao.