Brent oil fell in London, narrowing its record premium to the main U.S. oil grade, as investors bet that Libyan production may recover after rebels entered the capital city of Tripoli in a push to force out Muammar Qaddafi.
The European benchmark contract tumbled more than 3 percent amid speculation Qaddafi’s regime is crumbling. Libya’s output dropped to 100,000 barrels a day last month, a Bloomberg News survey showed. That’s less than 10 percent of the 1.6 million barrels the nation pumped before the uprising started in February. Prices rose in New York as the dollar weakened, making crude more attractive for protecting against inflation.
“If the rebels continue to gain control as more liquidity comes into the oil market we could see prices fall more,” said Torbjoern Kjus, a senior analyst at DnB NOR ASA in Oslo, who predicts Brent will stabilize at about $100 a barrel. “We have no idea right now how much the oilfields and infrastructure have been damaged. But all the incentives are there for western companies and countries to get production back as quickly as possible.”
Brent oil for October settlement dropped as much as $3.47 to $105.15 a barrel on the London-based ICE Futures Europe exchange, and was at $107.42 at 1:41 p.m. London time. The contract was at a premium of $23.93 to West Texas Intermediate, the main U.S. grade, compared with a record $26.21 at settlement on Aug. 19.
‘Room to Fall’
Crude for October delivery, the most actively traded contract on the New York Mercantile Exchange, gained $1.08 to $83.49 a barrel in electronic trading. September futures, which expire today, rose $1.05 to $83.31. They fell 3.7 percent last week, a fourth weekly decline. Prices have slumped 28 percent from their 2011 peak on May 2.
“Brent has a lot more room to fall,” Victor Shum, a senior principal at Purvin & Gertz Inc. in Singapore, said in an interview with Linzie Janis on Bloomberg Television’s “First Look” today. “In the near-term, it could fall below $100. If Qaddafi is gone in a matter of days, expectations are that Libyan oil flow will resume quite quickly.”
Brent, more sensitive to global supply disruptions than WTI because it’s a benchmark for half of the world’s oil, advanced 19 percent in the first half of 2011 as an armed rebellion against Qaddafi disrupted the country’s supplies. Libyan rebels said they captured two of Qaddafi’s sons as they pushed into Tripoli yesterday.
Brent is trading below its 200-day moving average, signaling a breach of technical support, according to data compiled by Bloomberg. This indicator is around $107.90 a barrel today. Prices tend to extend declines when chart-support levels are broken.
Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 49,608 contracts, the London-based exchange said today in its weekly Commitment of Traders report. Net-long positions rose by 756 contracts, from 48,852 a week earlier.
New York futures rose on speculation that further measures by the U.S. Federal Reserve to stimulate the economy will support demand for fuel in the world’s biggest crude consumer.
Prices in New York and London have declined for the past four weeks as debt crises in Europe and the U.S. deterred investors from holding riskier assets. Hedge funds and other speculators cut wagers on rising crude prices by 0.1 percent to 142,769 in the week ended Aug. 16, according to the Commodity Futures Trading Commission’s Commitments of Traders report.
The Organization of Petroleum Exporting Countries will react if prices continue to slump, Iranian OPEC governor Mohammad Ali Khatibi said, according to comments on the oil ministry’s website. Still, he said there’s no need currently for the organization to convene an emergency meeting.
Crude may recover if operations in the Gulf of Mexico are disrupted by this year’s Atlantic storm season, which runs between June and November.
Hurricane Irene became the first hurricane of the season, strengthening from a tropical storm as it moves over Puerto Rico, the National Hurricane Center in Miami said in a statement today.
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