US Oil Prices Rebound After Falling Below $85 a Barrel

on Oct 25, 2012

On Wednesday 24 October the US Department of Energy announced oil inventories in the States rose by 5.9 million barrels hitting a three-month high well above the 1.9 million barrels increase predicted by a Reuters survey of analysts. As a result there was a substantial sell-off, which drove oil prices below $85 a barrel for the first time in more than three months.

According to the Financial Times, the Nymex December West Texas Intermediate Crude dropped $1.73 a barrel to a low of $84.94. In the last month crude oil lost 15 percent after briefly reaching $100 a barrel as profit-taking followed the rally inspired by a third round of quantitative easing from the Fed.
Gasoline inventories rose by 1.44 million barrels, compared with analyst expectations of a 700,000 climb, while distillate stocks, which include diesel and heating oil, fell by 646,000 barrels below analyst forecasts of a 900,000 drop.

“A build in crude and gasoline inventories that was greater than expected coincided with the reporting of a draw in distillate stocks that was smaller than the anticipated,” BNP Paribas’ report concluded. “It leaves national crude stocks 11 percent above last year and, combined with the continuing crude overhang at Cushing (40 percent above last year), the ample crude stock position helps to weigh on crude prices,”

**Thursday Rebound**
After falling for five days in New York, oil rebounded slightly on optimistic sentiment that reports will show an improvement in the US economy.
!m[Optimism about the US Economy and Supply Curbs Buoyed Brent and WTI Benchmarks](/uploads/story/643/thumbs/pic1_inline.png)“I’m looking at data in the service area in particular that could see some upside surprise to those positive estimates,” said Michael McCarthy, a chief market strategist at CMC Markets, as quoted by Bloomberg “That will be a reminder to all markets, but particularly oil markets, of the much-improved U.S. economic situation.”

The December WTI rose as much as 89 cents to $86.62 a barrel, while Brent crude gained 71 cents to $108.56 a barrel.
The discount of WTI to Brent, which rose to $22.62 at one point yesterday, shrunk today to $22.03.
Oil and particularly Brent Crude, received strong support from maintenance-related curbs to North Sea production – the Buzzard field is expected to resume operation on October 25 or 26, three days later than previously thought. The field is the largest of the contributors to the Forties crude blend, the most important North Sea crude underpinning the Brent benchmark.

Oil has also been rallied by the potential supply shortages and demand spikes that would occur if Iran’s ongoing dispute with Israel escalates into a war.
**Tough Call on Iran Sanctions**
Only a few weeks after the US election, President Barack Obama will have to make a tough call on whether to impose stricter sanctions on Iran.
On paper, the sanctions require Washington to continuously tighten the restrictions on Iran’s exports “toward a complete cessation” in order to pressure Tehran to stop its uranium enrichment programme.
Iran’s oil exports hit a new-time low of 860,000 barrels last month, down from 2.2 million barrels at the endof2011. The US government needs to be careful not to reduceIranian oil exports too much, since that would result in price gains for the commodity, which help Iran, hurt US allies and harm the global economy.
“If you tighten the screws too hard and it causes oil prices to spike, then you both undermine the effectiveness of the sanctions and you erode support for the sanctions from other countries,” said Trevor Houser, a partner with the policy and economic consultancy Rhodium Group.


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