Oil lifted by prospects of US quantitative easing
LONDON — Oil futures rose towards $111 a barrel on Tuesday, after new calls were made for further US monetary easing and on supply worries — with falling North Sea output expected in September, Middle East tensions and the Gulf of Mexico hurricane season.
Investors’ hopes that the US and China, the world’s top two oil consumers, will adopt stimulus measures to boost growth were a positive for the oil market.
Boston Federal Reserve Bank president Eric Rosengren’s calls on Tuesday in support of expanding the US central bank’s monetary policy further buoyed prices. The statements renewed expectations that a third round of quantitative easing is in the pipeline for the world’s biggest oil buyer.
China will release from Thursday a deluge of data, ranging from industrial output to investment.
Brent crude for September delivery rose $1.16 to $110.71 a barrel by 2.11pm GMT. It is the first time the oil futures have moved above $110 a barrel since mid May.
US crude firmed 54 cents to $92.74.
Further supportive economic news came from the European Central Bank (ECB), which indicated last week it may again start buying government bonds to reduce heavy Spanish and Italian borrowing costs, but details had yet to be fleshed out.
"Risk appetite is coming back to the market," said Eugen Weinberg at Commerzbank in Frankfurt. "The market is waiting for more confirmation of the overall positive trend. Expectations are so low that it is unlikely there will be a surprise to the downside."
Tight European market
Oil output from the North Sea is set to fall to a record low of 720,000 barrels per day (bpd) in September due to oilfield maintenance and natural decline, which may raise further doubts about Brent as the main global oil benchmark.
The Brent contract is based on four North Sea crude oils — Brent, Forties, Oseberg and Ekofisk. Loadings for the largest crude stream, Forties, will fall to 200,000 bpd in September from 290,000 bpd in August.
The forthcoming supply tightness has pushed the front month spread to its widest since October 2011.
The September Brent price has risen sharply above October’s, a market condition known as backwardation, which points to strong prompt demand.
Violence in Syria and Iran’s dispute with the West over Tehran’s nuclear programme continued to keep investors worried about the potential threat to oil supply from the region.
Exports of Iraqi Kirkuk were stopped over the weekend after a blast but were restarted at midday on Tuesday, according to the Kurdistan regional government, who had previously promised to contribute to flows once again in August.
Delays on the Iranian alternative had already reached nearly 20 days after the regional government stopped adding its output to the flow due to a payment dispute with the central government in Bagdhad.
"Brent has lagged behind WTI’s (US crude’s) rise but should catch up on a tightening Mediterranean market with lower North Sea loadings and the blast on the Turkish pipeline," said Tobias Merath, head of commodity research at Credit Suisse private banking.
In North America, investors were watching Tropical Storm Ernesto. US forecasters said it should strengthen into a hurricane before hitting Mexico’s tourist Yucatan peninsula but it was too early to know if it would disrupt oil and gas operations in the Gulf.
Crude stockpiles in the US were forecast down last week for a second straight time, a preliminary Reuters poll showed.
"We’ve seen a decent level of inventory draw in the US recently so an active hurricane season could take the market extremely tight," said Guy Wolf, macro strategist at Marex Spectron in London.