Oil refinery. Picture: THINKSTOCK
Oil refinery. Picture: THINKSTOCK

SINGAPORE — Oil slipped on Monday, with Brent near $109 a barrel, as refineries along the US East Coast wind down operations ahead of approaching Hurricane Sandy, reducing crude use in the world’s largest oil consumer.

Phillips 66 on Sunday started shutting its 238,000 barrels a day refinery in New Jersey, the second-largest plant in the US, while three others reduced rates. The rate cuts come after a rise of nearly 6-million barrels in US crude stocks in the week to October 19.

Brent crude had fallen 40c to $109.15 a barrel by 6.17am GMT, after posting a 0.5% loss last week. US crude was down 31c at $85.97.

"With refineries cutting runs, we’re likely to see a build-up in crude stocks which could be driving bearish prices at the moment," said Michael Creed, an economist at National Australia Bank in Melbourne.

Hurricane Sandy, which could become the largest storm ever to hit the US, is expected to slam into the East Coast on Monday night.

The CME will suspend floor trading on Monday at its Nymex world headquarters ahead of the storm, although electronic dealing will operate normally.

US heating oil and RBOB petrol futures and their crack spreads rose as speculators expect fuel supplies to tighten and are betting on wider price spreads between products and crude.

"The buying of crack spreads has put downside pressure on crude," said Yusuke Seta, a commodity sales manager at Newedge Japan.

A crack spread is the price difference between an oil product and crude oil. To buy the spread, investors buy the oil product contract and sell crude simultaneously.

"Markets will be watching for reports of damage to energy infrastructure, notably refineries, post-Sandy given the state of extremely low gasoil inventories as we move into winter season," Deutsche Bank analysts said. Expectations for a cold start to winter will further tighten gasoil supply, they said.

Speculators cut their net long US crude futures and options positions to the lowest level in three months in the week to Oct. 23 as prices fell by almost 6%, the US Commodity Futures Trading Commission said.

Buzzard eyed

The impending restart of Britain’s largest oil field and a quick recovery in Nigerian crude output also limited Brent’s gains.

The Buzzard field in the North Sea is expected to restart by Monday and its operator, Nexen, has said it will return to full operations over the next two weeks.

Nigerian oil exports in December are expected to reach the highest level since May, pointing to a swift recovery of production after floods knocked out a fifth of output in the top African producer.

"Returning Atlantic Basin supply and growing US production may help ease Brent ... but will, at least, be partially offset by increased crude demand into year-end," Morgan Stanley analysts wrote in a note.

The world’s spare oil production capacity outside Iran also rose in the last two months as US petrol demand waned and oil use for power generation fell in the Middle East, the US government said.

In Iraq, exports of Basra Light are set to hit a record level at 2.531-million barrels a day in November, traders said, and a preliminary programme supported that.

Reuters