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U.S. Crude Settles Lower; Brent Climbs to Nine-Month High

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Benchmark U.S. crude oil futures dropped to a two-week low on reduced refinery demand, while North Sea Brent crude oil prices climbed to a nine-month high on rising tensions over Iran's nuclear program.

"In the next few weeks, there are going to be serious turnarounds, and demand for crude will be soft" at U.S. refiners, said Andy Lebow, senior vice president for energy futures at Jefferies Bache LLC.

Already refiners have begun shutting facilities for overhauls necessary for the seasonal switch to production of cleaner-burning summer-grade gasoline from winter-grade fuel.

The demand drop in the U.S. pushed March light, sweet crude oil futures on the New York Mercantile Exchange down 79 cents to settle at $95.83 a barrel.

Meantime, ICE Brent crude oil for March gained 51 cents to settle at $117.24 a barrel, the highest level since May 2, 2012. Brent's premium to Nymex crude widened to $21.41 a barrel, the highest level since Dec. 14.

Brent has gained in recent weeks against the U.S. benchmark as pipeline snags have reduced the expected volume of crude which can move from the Midwest to the key Gulf Coast refining region. The spread dipped below $16 a barrel in mid-January on the notion that domestic crudes would gain market share in the refinery hub at the expense of imports, whose price is related to Brent.

Back in May, when Brent last topped $117 a barrel, members of the Organization of the Petroleum Exporting Countries were expressing concern that global oil prices above $100 would risk disrupting the global economy.

Gulf OPEC officials said Thursday that Saudi Arabia, the world's biggest oil exporter, and others in the region aren't inclined to increase their output despite rising prices, saying there isn't a need to do so now.

"Saudi Arabia and other Gulf producers are not worried about the recent price hikes," a senior Gulf OPEC official said. "The Gulf stands ready to supply their customers with what they need and stabilize the crude markets, but at the moment there is no call for action."

Another Gulf official said prices aren't being led higher by a shift in the supply/demand balance.

"Don't get me wrong; we would like oil prices to stabilize around $100 a barrel, as high prices could slow down economic growth," another Gulf official said. "But a price rise for a couple of days is not a call for worry."

Analysts said internationally traded Brent was supported Thursday by news that Iran has rejected the notion of direct talks with the U.S. over its nuclear ambitions at the same time that the U.S. has tightened economic sanctions.

Iran, which had been OPEC's second-biggest producer, has seen its crude exports drop by more than half, to near 1 million barrels a day, due to sanctions. Others in OPEC, led by Saudi Arabia, have sharply boosted output to cover lost supplies from Iran. But in recent months, the Saudis have scaled back output by some 700,000 barrels a day to near 9 million barrels a day, after many forecasts said the world will need less oil from OPEC this year as producers outside the group, like the U.S., increase output.

Mr. Lebow of Jefferies said global oil supply is ample now, and the recent Saudi restraints will only mean "the perceived surplus in supply is lower."

March-delivery heating oil futures settled 1.37 cents higher, at $3.1995 a gallon, the highest price since Oct. 15. March reformulated gasoline prices settled 3.98 cents lower, at $2.9999 a gallon, the lowest price since Jan. 29.
 

Copyright (c) 2012 Dow Jones & Company, Inc.

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