By: Sri Jegarajah
U.S. crude futures are on course for their fifth weekly loss, reflecting a build-up of domestic stockpiles while Brent crude may gain on concern of continued export disruptions from OPEC member Libya, CNBC’s latest market survey of traders, analysts and strategists showed.
Broadly, two-thirds of the respondents in CNBC’s latest poll of oil market sentiment (12 out of 18) believe prices will continue falling this week. Twenty eight percent (5 out of 18) expect prices to trade at current levels while a single respondent expects prices to gain.
However, fundamental dynamics driving the two markets may widen the gap between the global benchmarks – which currently stands at almost $12 a barrel – to over $15 until U.S. refineries complete seasonal maintenance, helping to drain the supply overhang.
High stockpiles of U.S. crude have pressured U.S. oil prices, which fell 3.3 percent last week, the steepest drop since the week ended June 21. Brent crude settled nearly $3 lower on Friday at its lowest since July 4.
Carl Larry, president of Houston-based consultancy Oil Outlooks and Opinions said while softer U.S. economic growth will impact demand in the world’s biggest oil consumer, stronger factory activity in China combined with supply fears in Libya, Iraq and Nigeria could drive Brent’s premium over U.S. crude to $16 a barrel.
The possibility of a rate cut by the European Central Bank this week, and a potential announcement by the ECB of further stimulus, are “also creeping into the strength of Brent,” Larry said. “November was a month of turnaround in the opposite direction last year. We saw WTI rally and Brent fade under economic strife in the EU, but we think the tables are turned and we are going to be playing the opposite side of the field this month.”
Unrest in Libya and the challenge of returning production and exports to normal levels will continue to support Brent crude and widen the spread, strategists said.
“While WTI continues to be weighed down by higher refinery maintenance in the U.S. and the associated build in crude stocks seen there in the last two weeks, the Libyan supply situation is rather more bullish on the other side of the Atlantic,” said Johannes Benigni, Managing Director of JBC Energy in Vienna.
Protests
Leaders of an autonomy movement in Libya’s oil-rich east unilaterally declared a regional government on Sunday, in a further challenge to the weak central government, Reuters reported. The recent spate of protests and strikes at ports and oil fields have knocked down crude production to some 10 percent of Libya’s capacity of 1.25 million barrels a day.
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