|Oil up above $112 on Spain, U.S. gasoline|
|Friday, 28 September 2012 12:41|
Oil prices were firmer above $112 on Friday as plans for economic reform in Spain temporarily eased investor concerns about Europe's debt crisis, whilst tight gasoline supply in the United States also helped to underpin the crude market.
Improved market sentiment helped lift oil, base metals and gold after Spain announced a crisis budget for 2013 based mostly on spending cuts. Spain has slashed ministry budgets by 8.9 percent for next year and kept public sector wages frozen for a third year.
"It's a broad-based risk-on rally," said Carsten Fritsch, an energy analyst at Commerzbank in Frankfurt. "The trigger was the approval of the Spanish austerity measures yesterday which has temporarily eased some of the concerns about the euro zone debt crisis."
Brent crude futures were up 69 to $112.70 a barrel by 1303 GMT (0903 EDT), on track for a 15 percent quarterly gain. U.S. crude was up 18 cents to $92.03.
Traders and analysts said that Brent was also drawing strength from U.S. RBOB gasoline, which has been supported by very low inventories and unplanned outages that have tightened up the market.
"A lot of people trade RBOB against Brent, so it does have an impact," a broker said. "One trader told me that he had never seen a physical market as tight as this one."
Dominick Chirichella of the Energy Management Institute said RBOB had increased by almost 8 percent in the last three trading sessions as the October futures contract approaches expiry.
"The plethora of refinery issues including the restart problems from Hurricane Isaac have all contributed to gasoline inventories continuing to decline and now standing at the lowest level for this time of the year since October of 2008," he said.
In the U.S. northeast, inventory levels are at the lowest on record for this time of year, he added.
Victor Shum, managing director for downstream energy consulting at IHS Purvin & Gertz, said that supply risks in the Middle East and geopolitical worries were also lending support.
In a speech on Thursday at the United Nations General Assembly, Israeli Prime Minister Benjamin Netanyahu drew a "red line" for Iran's nuclear program, saying that Tehran would be on the brink of developing a nuclear weapon in less than a year.
Brent futures are set to post their biggest quarterly gain in 1-1/2 years due to a combination of central bank monetary stimulus and Middle East tensions, which have tightened supply.
Brent is on track to gain around 15 percent over the quarter compared with a 20 percent drop for April to June. The U.S. contract is set to advance 9 percent, the highest since the three months ending December 31, 2011.
The stronger performance is due to a fall in exports from Iran as a European Union ban on insuring tankers carrying the OPEC member's crude came into effect on July 1. The West provides insurance cover for most of the world's shipping fleet.
On the stimulus front, the U.S. Federal Reserve initiated a third round of measures to revive growth in the world's biggest economy. This helped to ramp risk assets, but concerns remain about weak demand in Western economies.
The market will be eyeing September's Chicago PMI data, due later today, for clues as to how well the U.S. manufacturing sector is doing. The PMI is expected to be unchanged at 53.
The final estimate of the Reuters/University of Michigan consumer sentiment index for September is also due, and forecast at 79 up from 74.3 in August.