Crude oil futures settled slightly weaker Thursday but held above the key $100-a-barrel level amid continued worries about the global economy and oil demand.
Because of worries over a rise in U.S. jobless claims, traders put a halt to a four-day rally that had lifted U.S. benchmark crude by 4.4%. The Labor Department said new applications for unemployment benefits rose for a second straight week, gaining 6,000 to 402,000 last week. Economists had called for a 3,000 decline.
Analysts said the failure of U.S. equities to continue higher after Wednesday's huge rally, the biggest gain in the Dow Jones Industrial Average since March 2009, spurred profit-taking in oil futures throughout the session.
The market also paused to assess the impact of an unexpected rise in U.S. crude oil and distillate (diesel/heating oil) inventories last week against a backdrop of strong concern over the European sovereign debt crisis.
Kyle Cooper, managing partner at IAF Energy Advisors, said the concerted move by central banks to add liquidity to the global market, which lifted oil and equities Wednesday, also served to show the fragility of the situation. "The growth outlook is really bad" in Europe, he said. "Clearly, they are going to need a lot of help to avert a further financial meltdown." A spreading economic slowdown would put downward pressure on oil prices, analysts said.
Light, sweet crude oil for January delivery on the New York Mercantile Exchange settled 16 cents lower at $100.20 a barrel. The contract seesawed around a $100 midpoint throughout the day. ICE North Sea Brent crude oil for January settled $1.53 a barrel lower, at $108.99 a barrel.
The spread between Nymex crude and Brent narrowed to $8.79 a barrel, from $10.16 a day earlier, and was the slimmest since March 8. Traders said Brent is under pressure from a faster-than-expected recovery in Libyan oil output. Libyan officials said output has climbed to more than half of the 1.6 million barrels a day it produced prior to the nation's civil war. Demand for Brent during the civil war helped push the North Sea crude to a nearly $28-a-barrel premium to the Nymex price.
U.S. oil market fundamentals are back in the spotlight after unexpected large increases last week in stocks of crude oil and distillate fuel.
"U.S. oil balances [are] looking much less bullish" after the data, said Jim Ritterbusch, president of Ritterbusch and Associates.
The federal Energy Information Administration said Wednesday crude oil stocks rose 3.932 million barrels in the week ended Nov. 25 as refiners slowed processing rates and boosted imports. Analysts expected crude stocks to drop 500,000 barrels.
The data also showed a jump of 5.526 million barrels in distillate stocks (diesel/heating oil), compared with an expected drop of 1.1 million barrels. The rise came during persistent warm weather in the Northeast heating oil region, which analysts said cut demand.
Despite the rise, crude stocks are in line with five-year levels. Distillate stocks are 2.8% below the five-year average, but that gap has narrowed sharply from a 7.3% deficit in recent weeks.
Government forecasters said Wednesday that above-normal temperatures are expected to stretch from the Gulf Coast through the mid-Atlantic region and into the New York Harbor heating oil region in December. Earlier forecasts had called for equal chances of normal, above-normal or below-normal temperatures in the area.
Nymex January heating oil futures settled down 5.56 cents, at $2.9695 a gallon.
Michael Wittner, analyst at Societe Generale, said gasoline remains pressured by "the status quo of weak demand and high stocks."
Four-week gasoline demand was down 2.9% compared with a year ago and the weakest for this time of year since 2000, the EIA data show. Gasoline inventories are 2.8% above their five-year average level.
Reformulated gasoline blendstock futures for January settled 0.05 cent lower, at $2.5579 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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