IN the Singapore market, Brent crude stayed above $93 a barrel on June 28 after rallying on an output cut by Norway and upbeat US economic data, although gains were checked by expectations that an EU summit was unlikely to produce concrete measures to contain the region’s debt crisis. Persistent worries about the euro zone debt crisis and fading hopes that a summit of European Union leaders this week will find a lasting solution have weighted on prices this month. On the day Brent crude was down eight cents at $93.42 after settling at $93.50 a day earlier, the highest in just over a week.
Positive economic data from the United States buoyed global markets ahead of the EU summit. Demand for long-lasting US manufactured goods rebounded while a gauge of business spending plans rose. But slowing global growth suggests the momentum might not be sustained. US crude oil stocks fell slightly last week on a dip in crude imports and increased refining rates, while fuel stockpiles were mixed as gasoline inventories rose and distillates fell, government data showed.
Brent’s rally in the week was partly due to supply disruptions in Norway, the world’s eight largest oil exporter, analysts said. Oil production in Norway is down by about 240,000 barrels of oil per day, or 15 per cent of capacity, due to an oil workers’ strike, a local industry association said, although the country’s labor minister said the government was for from intervening. Investors are also keeping a close watch on the impact of western sanctions on Iranian crude supply as deadlines loom.
Recently Venezuela proposed that Opec set an oil price band of $80 to $120 a barrel, bidding to restore a policy the cartel tried 12 years ago in a failed attempt to control prices in a tight range by adjusting supply. The Organization of the Petroleum Exporting Countries in 2000 adopted a $22 to $28 price band, requiring its members to cut or raise output in an effort to keep prices in that range for an Opec basket of crudes. The policy quickly proved unworkable, however, and increasing demand from China pushed prices irreversibly through $30 in 2004.
Iran, an ally of Venezuela in Opec, did not dismiss the idea out of hand, pointing out that the $100 middle of the band proposed by Caracas is where many producers including Saudi Arabia want prices. Venezuela’s oil minister said a fall in global crude prices to $90 a barrel was a threat to core oil projects around the world.
Saudi Arabia, which said earlier this year it was happy with $100 a barrel, has shown no sign of cutting production to support prices that sank a fortnight back to below $90 for global benchmark Brent for the first time in 18 months. Venezuela relies on oil for more than 90 per cent of export revenue and has been heavily critical of the Saudis for increasing production to help suppress prices and support global economic growth.
Brent crude is set to recover from its worst quarter since 2008 as a European Union ban on Iranian oil takes effect, central banks act to protect growth and on speculation Opec will curb some of its excess supply. Brent, the second-worst performer between April and June in the Standard & Poor’s GSCI commodity index, is forecast to rebound to an average $114.50 a barrel in the third quarter.
Brent has lost 24 per cent in the quarter through June 26 to $93.02, its steepest slide since the 54 per cent retreat in the last three months of 2008. Concern earlier this year that measures against Iran might culminate in a wider disruption of Middle Eastern supply propelled Brent to a 3½-year high of $128.40 a barrel on March 1. The rally prompted other members of the Organization of Petroleum Exporting Countries to increase production and the US, UK and France to consider releasing emergency reserves.
Opec, responsible for 40 per cent of global supplies, resolved to constrain output at a June 14 meeting in Vienna because of “mounting” downside risks to the global economic and accumulating inventories. The group aims to pare back output to its official ceiling of 30 million barrels a day from the current 31.6 million barrels, according to secretary-General Abdalla El-Badri. While Saudi Arabian Oil Minister promised the following day that his country, Opec’s, largest member, will ensure that global markets remain adequately supplied, Morgan Stanley estimates that prices have fallen far enough for Opec to begin delivering on its June 14 resolution.
Adding to the EU ban, the US has imposed financial sanctions on banks handling Iran’s sales, though several nations, including India and South Korea, have been granted waivers after proving they already “significantly reduced” the volume they buy from the Persian Gulf nation.
Spain, the euro-region fourth-largest economy, requested as much as 100 billion euros ($125 billion) from European rescue funds this month to shore up its banking system the fourth member of the block to seek a bailout since the debt crisis began almost three years ago. Global oil demand will still increase by 2 million barrels a day, or 2.3 per cent in the third quarter to an average 90.5 million a day, according to the IEA.
IN the New York market, gold edged up on June 28 after the euro showed some resilience ahead of a European Union summit that is unlikely to deliver new measures to tackle the region’s debt crisis and may prompt investors to turn to the safety of the US dollar.
Gold has lost some of its safe-haven appeal after financial market turmoil caused by the prolonged debt crisis in Europe and the US Federal Reserve’s decision to take only a modest step to boost the economy forced investors to cash in bullion to cover losses.
Wall Street investment bank Morgan Stanley on June 28 lowered its precious metals price forecasts for 2012 through 2014, saying the move was in line with the bank’s cut in its global commodity price forecasts. Gold added $2.45 an ounce to $1,576.85 by 0602 GMT.