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Consumer confidence boosts US crude

Friday, April 11 17:30:56

U.S. crude oil rose today, lifted by a positive consumer confidence report that indicated strength in the U.S. economy, while Brent was pulled higher by traders covering short positions before the weekend in case ties with Russia worsened.

The International Energy Agency had set a bearish tone for the market earlier in the session after it lowered its global demand forecast for 2014 due to expectations that more Libyan crude will reach the market next week, pushing Brent lower.

But by mid-morning trade both the American and European benchmarks rose and were on track to end the week higher.

U.S. oil's rally was underpinned by strength in U.S. gasoline prices, which began climbing earlier in the week due to a sharp, unexpected fall in gasoline inventories that indicated robust demand ahead of the start of the summer driving season.

Brent was supported by the simmering tensions between the West and Russia that threatened to interrupt gas supplies to Europe. Russia warned Thursday it would cut off gas supplies to Ukraine if Kiev did not pay its bill but on Friday emphasised that this would not affect supplies to Europe.

Brent's premium over U.S. crude oil has narrowed over the week to its tightest since mid-September, adding buying support for U.S. crude.

"The consumer confidence number suggests the strong gasoline demand is giving the market a bit more momentum," said Phil Flynn, analyst at Price Futures Group in Chicago. Additionally, "It's Friday and there are nerves about being short over the weekend ... as rhetoric between Russia and the U.S. continues to heat up."

Brent crude rose 24 cents at USD107.70 a barrel by 11:19 a.m. EDT (1519 GMT) after settling 52 cents lower yesterday. The contract was on track to end the week nearly 1 percent higher, recouping part of the previous week's losses.

U.S. oil rose 75 cents at USD104.15 a barrel and was set to end the week nearly 3 percent higher.

The Brent-U.S. crude oil spread was last trading at USD3.59. On Thursday, the spread settled at USD4.06, its narrowest settlement since September 19.

Both contracts sold off on Friday after the IEA said in a monthly market report that global demand growth would average 1.29 million barrels per day (bpd) in 2014, down 60,000 bpd from its previous forecast.

This followed a similar trimming of the demand forecast by the Organization of the Petroleum Exporting Countries in its monthly report on Thursday to 29.65 million bpd in 2014, down 50,000 bpd from the previous estimate.

News that U.S. consumer sentiment rose in April to its highest in nine months caused prices to bounce and move higher, building on technical strength, analysts said.

"Consumer sentiment is a factor, but we are so close to the previous high that we are going to see the market pop above USD104.48," said Richard Ilczyszyn, Chief market strategist and founder of iitrader.com LLC in Chicago. "It is a combination of products being stable, technically being close to the previous high and the consumer numbers pushing the market."

Setting a floor under prices was the ongoing volatility between Russia and the West. U.S. President Barack Obama and German Chancellor Angela Merkel have discussed further sanctions for Russia, calling on Moscow to move its troops back from the border region.

On the supply side, the possibility that Libyan oil exports may pick up next week if some of its oil ports reopen remains a bearish factor in Brent prices.

On Thursday, Libya's state National Oil Corp lifted a force majeure for the eastern port of Hariga.

Analysts at JBC Energy in Vienna said in a note that this was "the strongest indication yet that a partial recovery in Libyan crude exports may be around the corner".

The country's two biggest ports, Es Sider and Ras Lanuf, remain blocked.

Bearish data out of China on Thursday that showed imports fell to five-month lows, and manufacturing fell too, continued to hang over the global demand outlook and cap prices in Brent. (Reuters)