Inside Financial Markets

Brent stays near $103 on stimulus fears, US stocks draw

Brent stays near $103 on stimulus fears, US stocks drawoil

SINGAPORE, June 6 (IFM-Web Desk) – Brent futures steadied near $103 a barrel on Thursday, as worries the U.S. Federal Reserve may scale back its stimulus countered the optimism stemming from a huge drop in oil stockpiles in the world’s top consumer.

Riskier assets weakened across the board, including equities and base metals, as investors remained nervous ahead of a key U.S. jobs report due on Friday that will be scoured for indications on the health of the world’s largest economy and what this means for the Fed’s policy. MKTS/GLOB .N

Brent LCOc1 gained 10 cents to $103.14 a barrel by 0522 GMT, swinging between $103.25 and a low of $102.81. U.S. oil CLc1 gained 10 cents to $93.84, after ending 43 cents higher.

“On the one hand, we saw a substantial drop in U.S. crude inventories,” said Victor Shum, vice president of energy consultancy IHS Energy Insight. “But a major pullback in U.S. equity markets because of worries over the Fed’s stimulus countered the bullishness of the inventory data. Therefore, oil is in a holding pattern.”

A weak global demand growth outlook and ample supplies will weigh on oil as fundamentals for the market are weak, Shum said.

But a weak dollar and worries that a geopolitical crisis in the Middle East may worsen will cushion oil prices.

The dollar gained almost 2 percent in May against a basket of currencies .DXY. A strong dollar weighs on commodities priced in the greenback by making them expensive for holders of other currencies.

The United States said on Wednesday it was “deeply troubled” by Iran’s plans to start a reactor in 2014 that could yield nuclear bomb material, highlighting concerns about the heavy water reactor Tehran is building near the town of Arak. (Full Story)

Tough Western sanctions have already driven Iran’s crude exports to the lowest in decades in May, and Washington may toughen measures aimed at squeezing oil sales further.

The United States has renewed six-month waivers on sanctions for China, India and seven others as they agreed to cut purchases of oil from Iran. (Full Story) (Full Story)




Oil prices also drew support from a more-than-expected fall in U.S. crude stockpiles.

U.S. crude inventories shrank as imports tumbled while gasoline stocks along the East Coast fell, data from the U.S. Energy Information Administration showed.

Stockpiles of crude declined by nearly 6.3 million barrels last week, led by a 2.5 drawdown on the Gulf Coast for the week to May 31, according to the EIA data. Analysts polled by IFM-Web Desk had forecast a much smaller 400,000 barrel decline. EIA/S

“Good refining margins present an incentive to run refinery capacity, but current utilisation levels are nonetheless only at the five-year average for this time of year,” analysts at BNP Paribas said in a note.

Brent is expected to test support at $102.49, with a good chance of breaking below this level and falling more to $101.82, while U.S. oil has completed a rebound from the Monday low of $91.26 and is expected to revisit this level, according to IFM-Web Desk technical analyst Wang Tao.

Ali Nawaz

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)