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BW Businessworld

Brent Rises Above $113 Monday

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Brent crude rose above $113 on Monday, gaining for a third straight day as hopes of oil demand growth during winter overshadowed concerns about the European debt crisis.

Low fuel inventories in the world's top oil consumer United States amid signs of an earlier-than-usual onset of winter may prompt refiners to ramp up output. That may further squeeze an already tight crude market coping with disruption in supplies from Libya and the North Sea.

"The tight supply situation is supporting the crude oil market, even though prices are being influenced by headline news out of Europe," said Natalie Robertson, an analyst at ANZ. "Inventory levels are low and looks like we have an earlier than usual onset of winter."

Brent crude gained $1.04 a barrel to $113.01 by 0611 GMT. It settled $1.14 higher on Friday, above its 100-day moving average of $111.13, rising for a second consecutive week.

U.S. crude traded 21 cents higher at $94.47 a barrel. The contract increased 1 per cent last week, posting a fifth straight weekly gain.

Tens of thousands of homes remained in the dark on Sunday a week after a freak October snowstorm paralyzed the U.S. Northeast and cut power to more than 3 million customers. In Connecticut, more than 112,000 Connecticut Light & Power customers were still in the dark.

Despite the cold spell in the United States, Brent prices have strengthened more than the U.S. contract because supply tightness of grades linked to the European benchmark is more acute, Robertson said.

"We have had output issues with North Sea crudes," she said. "Libya is still not back up fully."

U.S. crude prices would rise towards $100 a barrel if they break past $95 due to supporting factors such as winter demand, said Tetsu Emori, a fund manager at Astmax Co Ltd in Tokyo. The benchmark may rise close to $105 towards the end of the year.

Investors are also watching the unfolding bankruptcy of MF Global. CME Group and IntercontinentalExchange Inc moved over the weekend to limit the fallout from the MF Global bankruptcy on futures markets by lowering margin requirements on some accounts.

Demand Outlook
The CME also said on Monday that it has asked brokers who have taken over customer accounts from MF Global, which filed for bankruptcy on Oct 31, to not disburse any of the money until the close of business on Tuesday as it looks to verify the amounts involved.

"The market is more concerned about macroeconomic factors, and that is why the MF story is not creating much of an impact," Robertson said.

Riskier assets, from base metals to the stock futures, pared gains made earlier in the day as investors shifted their focus from Greece to another debt-burdened country, Italy.

Italy is the third largest economy in the euro zone with the biggest government bond market. With Italy's debt levels stuck at 120 per cent of GDP, the country's debt problems would pose a much bigger risk to markets than Greece does.

Markets had risen in early Asian trade on optimism European leaders would be able to contain the debt crisis with Greek Prime Minister George Papandreou and opposition leader Antonis Samaras agreeing on a new coalition government.

"The leaders have reached some agreement, but that does not mean the debt problems of Greece and Europe have been solved," Emori said.

Crude benchmarks are finding support on concerns of supply disruptions from major producers in the Middle East and North Africa as winter demand sets in.

Qatar's prime minister called for Arab states to meet next Saturday to weigh Syria's failure to implement a deal struck with the Arab League to end bloodshed that was touched off by the popular uprising against President Bashar al-Assad.

(Reuters)