U.S. oil rose slightly on expectations for increased demand as new
pipeline projects promise to relieve a glut of oil at the domestic
storage hub, though the demand picture remained unclear.
The diverging prices narrowed the spread between the two by more
than $1 from the previous session's close.
Reports late in the day that more than 30 Egyptian police officers
were wounded when a car bomb exploded near their base in the Suez
Canal city of Ismailia prompted Brent to pare losses. The Suez Canal
serves as a major transportation artery in the global oil market.
Brent crude oil pared about 50 cents of losses after the news, but
ultimately settled $1.03 lower at $108.67 a barrel, after hitting a
session low of $108.51. Brent prices dropped further in
post-settlement trading to $108.46 per barrel.
U.S. crude futures for January delivery rose 6 cents to settle at
$97.50 a barrel.
Brent's premium to U.S. oil <CL-LCO1=R> narrowed by more than $1 to
settle at $11.17.
Brent's premium over the U.S. benchmark has shed more than $8 in
volatile trade over the last two weeks as the market grapples with
whether demand for refined oil products is rising or whether U.S.
refiners are pumping out distillates to take advantage of rich
margins, said Bill O'Grady, chief market strategist at Confluence
Investment Management in St. Louis.
Changes in pipeline flows are expected to send oil from Cushing,
Oklahoma, the delivery point for the U.S. oil futures contract, to
U.S. Gulf Coast refiners, but it remains unclear how much of that
refined oil is making it to global markets.
While refiners churned out a record amount of distillates last week,
distillate stockpiles rose much more than expected, U.S. government
"The key question for the spread now is what happens to all the
accumulating product," O'Grady said. "The products have to go
somewhere. You can't refine and build inventory."
Ultra-low sulfur diesel (ULSD) futures, more commonly known as
heating oil, fell by more than 1 percent to a session low of $2.9775
per gallon, within fractions of a penny of the 50-day moving average
of $2.9785. The contract settled 4.11 cents lower at $2.9801.
The crack, or difference, between U.S. crude oil futures and ULSD
<CL-HO1=R> narrowed by $1.79 to end the day at $27.66. The crack for
Brent <LCO-HO1=R> narrowed by 70 cents to settle at $16.49.
[to top of second column]
Traders awaited news from a U.S. Federal Reserve meeting next week
that will likely center on the timing of pulling back its stimulus
program, which has kept the dollar weak and supported commodities
The U.S. central bank has been buying $85 billion worth of bonds a
month to free up cash reserves at banks and stimulate lending.
Mixed U.S. economic data has kept financial markets uncertain on
when the Fed will begin to taper the bond purchases.
The number of Americans filing new claims for unemployment benefits
rose sharply last week, reversing the previous three weeks'
declines, but a recent strengthening of the labor market likely
Strong U.S. retail sales data also supported the dollar, which
pressured Brent prices. A strong dollar makes commodities priced in
the greenback more expensive for buyers using other currencies. The
dollar index, a measure of the greenback's strength against a basket
of currencies, was last trading 0.39 percent higher at $80.202.
Brent prices were also pressured after Libyan Prime Minister Ali
Zeidan said on Wednesday the government expected eastern tribes to
reopen three oil ports over the weekend. The closure of most of
Libya's oil facilities since July has underpinned international oil
prices for several months in what was the worst disruption to hit
Libya's oil industry since the 2011 civil war.
In addition, oil exports from certain OPEC members will rise 380,000
barrels per day in the four weeks to Dec. 28, an oil consultancy
said, adding more supply to the market.
(Additional reporting by Julia Payne
in London and Manash Goswami and Jacob Gronholt-Pedersen in
Singapore; editing by Keiron Henderson, Jane Baird, Meredith
Mazzilli, Peter Galloway, Alden Bentley and Leslie Gevirtz)
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