SINGAPORE, Oct 11: Brent oil slipped towards $111 per barrel on Friday but was still on track to end the week higher after an overnight jump in prices due to concern over supply risks in the Middle East and hopes of a deal to end the U.S. Budget crisis.
Republican leaders offered a plan on Thursday to extend the U.S. Government’s borrowing authority for several weeks, which would postpone a possible U.S. Default, raising hopes of an end to the budget impasse that has clouded the demand outlook in the world’s biggest oil consumer.
Although questions remained over whether a deal could be struck, the news sparked a big rally on Wall Street and in oil prices, with Brent touching a four-week high of $112 per barrel.
‘Prices have been coming down through the uncertainty, so we’re claiming higher ground,’ said Ben Le Brun, a market analyst at OptionsXpress in Sydney. ‘I think we can expect further upside for both Brent and WTI if they sort this out.’
Brent futures were 26 cents lower at $111.54 per barrel at 0450 GMT, after closing $2.74 higher at $111.80. The benchmark was on track for its biggest weekly gain in six weeks.
U.S. Crude was down 26 cents at $102.75 per barrel and was on track for its fourth weekly decline in five weeks.
MIDDLE EAST SUPPLY RISK
Concerns over supply risks in the Middle East and North Africa helped support oil prices on Thursday after Libyan Prime Minister Ali Zeidan was captured and held for several hours by a former militia.
The incident highlighted instability in the country, where oil output recently recovered to 700,000 barrels per day after unrest had caused production to fall at mid-year to its lowest since a 2011 civil war.
Oil prices also jumped $1 on Thursday when oil traders were spooked by a Twitter posting from the Israeli military that, at first glance, suggested it had just bombed Syrian airports.
‘Recently, the Middle East has played second fiddle to what’s going on in the United States. But even though the news flow has improved out of the region and the risk premium has been coming out of oil, it’s still in the forefront of investors’ minds,’ said Le Brun.
OPEC further lowered the forecast demand for its crude in the fourth quarter and 2014, and said its production remained higher than next year’s global requirement despite a plunge in Iraqi and Libyan output.
‘Despite the more positive outlook for the U.S. And Europe, global product markets are expected to come under pressure over the winter season,’ OPEC said Thursday in its monthly report.
The outlook could weigh on oil prices and points to a challenging 2014 for the Organization of the Petroleum Exporting Countries, as rising output elsewhere will make it harder for it to keep its own production at high rates without risking a drop in prices below its preferred level of $100 a barrel.
The dollar climbed to a two-week high against major currencies on rising optimism about a deal to avert a U.S. default, adding pressure to oil prices. A stronger greenback makes it more expensive for importing nations to buy dollar-denominated oil.
The gap between WTI and Brent <CL-LCO1=R> stood at $8.77
Per barrel. The spread widened to as much as $9.10 per barrel on Thursday and settled at $8.79, its widest settlement since early June.
The U.S. Commodity Futures Trading Commission will not publish its weekly Commitment of Traders report, which was due out on Friday.
(AGENCIES)
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