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 European benchmark Brent prices slipped modestly, widening the
closely watched Brent/WTI spread for a third day, but the main focus
was on the U.S. contract after a double dose of bearish supply news.
The U.S. Department of Energy surprised markets by announcing plans
to sell up to 5 million barrels of crude oil from the Strategic
Petroleum Reserves (SPR) to test the capabilities of the nation's
emergency stockpile.
U.S. Energy Information Administration (EIA) data showed overall
crude stocks in the world's largest oil consumer rose by 6.2 million
barrels in the week to March 7, nearly triple expectations, as more
refiners shut for seasonal work at the peak of the spring
maintenance season.
"We are heading lower on this (EIA) report and the SPR release,"
said Matt Smith, analyst at Schneider Electric in Louisville,
Kentucky. "It's only 5 million barrels, but any further supply
coming to the market is going to have a bearish impact."
Brent crude fell as well, though not by as much, with support from
geopolitical risk in Libya and signs the European Union may impose
tougher sanctions on Russia.
U.S. crude settled $2.04 lower at $97.99 a barrel, below the 50-day
moving average of $98.32 by midday.
Brent crude oil futures settled about 53 cents lower at $108.02 per
barrel.
Brent's premium over U.S. crude <CL-LCO1=R> settled $1.51 wider at
$10.03, the first time it settled above $10 since Jan. 29.
AMPLE SUPPLY, LOW DEMAND
The DOE said its test sale, the first since 1990, was timed so
refineries interested in buying from the reserve can plan for when
their facilities come out of annual maintenance cycles and crude oil
stocks are needed in preparation for the switch over to summer grade
gasoline.
Analysts said the decision was surprising given the high levels of
U.S. crude oil stockpiles.
"The U.S. is well supplied," said Mark Routt, a senior energy
consultant at KBC in Houston. "In terms of crude stocks, there's
little reason for (the sale) unless it was operational or for some
other technical reason."
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EIA data reinforced a picture of ample supply and low demand.
Crude oil imports rose 199,000 barrels per day, while refinery
rates dropped 1.4 percentage points to 86 percent of capacity as
units shut for spring maintenance, the data showed.
Weighing on global oil markets, copper declined to near four-year
lows as concerns increased over the economic health of China, the
world's No. 2 oil consumer.
Investors await fresh economic data from China on Thursday,
including industrial output, retail sales and urban investment.
Brent drew some support from turmoil in Libya, where the parliament
voted Prime Minister Ali Zeidan out of office on Tuesday after
rebels humiliated the government by loading crude on a tanker that
fled from naval forces.
The Libyan Air Force fired on the tanker Tuesday, managing to stall
the ship, but has since lost contact with the tanker, which managed
to restart its engines and was last seen near the border with Egypt,
a Libyan minister said.
On the Ukraine crisis, German Chancellor Angela Merkel said Europe
will impose tougher sanctions on Russia next week if there is no
sign that Moscow is willing to engage in a "contact group" to seek a
diplomatic solution over the Crimea peninsula.
(Additional reporting by Peg Mackey
in London and Manash Goswami in Singapore; editing by Dale Hudson,
Bernadette Baum and Tom Brown)
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