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 Crude prices on both sides of the Atlantic had tumbled nearly 2
percent on Tuesday after weak Chinese and European manufacturing
data dampened the outlook for global demand and news emerged of
fresh talks to reopen Libyan ports after months of closures.
The downward pressure on Brent prices continued as Libyan government
officials said they could finalize a deal with rebel groups to
reopen the ports, which previously accounted for 600,000 barrels of
oil exports per day, within two to three days.
U.S. crude oil prices tried to rally on bullish data from the Energy
Information Administration (EIA) on Wednesday that showed domestic
crude inventories fell last week. But the American benchmark held in
negative territory on a number of other economic factors.
A key global stock index edged up to a 6-year high and eight of 10
S&P 500 sectors were in positive territory, as investors appeared to
be pulling out of commodities like oil to take advantage of the
equities rally, analysts said.
Also, the U.S. dollar was stronger against a basket of foreign
currencies, which weighed on commodities like oil that are priced in
dollars.
"In addition to Libya, the Euro zone economy is so bad they may have
to potentially adopt zero-percent interest rates to get things going
again, and these are not bullish factors for Brent," said Walter
Zimmermann, chief technical analyst at United-ICAP.
The Euro zone economy does not look as healthy as the U.S. economy,
which is why U.S. crude is not falling as much, Zimmermann said.
U.S. crude oil fell to $98.85 a barrel in the wake of the U.S. data,
but pared losses to settle just 12 cents lower at $99.62 per barrel.
Brent crude oil settled 83 cents lower at $104.79 a barrel after
falling to $103.95, its lowest since Nov. 8.
The Brent May contract briefly fell to parity with the Brent June
contract, threatening to move to a discount, or contango, which
signals ample supplies and weak demand.
Contango has been rare in the Brent market over the past three years
as supply outages have tended to keep the contract closest to
delivery above those for delivery in the future.
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The spread between Brent and U.S. oil, or WTI, contracted to $4.81,
its narrowest intra-session point since Sept. 24, led by declines in
Brent. It settled at $5.17.
"As U.S. crude oil is easier to get to the Gulf Coast, that spread
will come in and people will be interested in that as a speculative
position if it (falls below) $5," said Phil Thompson, director of
Mobius Risk Group in Houston.
Zimmermann predicts the spread could tighten to as little as $1-$2.
Surveys showing that factories across Europe eased back on the
throttle in March and that China's vast manufacturing industry contracted for a
third straight month have raised expectations that oil demand could falter.
U.S. DATA
Crude inventories fell 2.4 million barrels in the week to March 28,
compared with analyst expectations for an increase of 1.1 million
barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell
for the ninth straight week by 1.2 million barrels.
U.S. Gulf Coast crude oil imports fell to their lowest since
September 2008, due to the closure of the Houston Ship Channel for
most of the reporting period following a fuel oil spill after a
collision of two vessels.
(Additional reporting by Lin Noueihed and
David Sheppard in London, and Florence Tan in Singapore; editing by
William Hardy and Nick Zieminski)
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