Brent Oil Set for First Weekly Drop in Three on China

Oil fell in London, erasing a weekly gain, as concern that accelerating inflation in China will impede steps to stimulate growth countered a drop in crude production in Saudi Arabia.

Brent futures declined as much as 1.5 percent and headed for their first weekly decline in three weeks. China’s inflation climbed more than forecast to a seven-month high, potentially limiting scope for policy easing. Saudi Arabia, the world’s largest crude exporter, reduced output in December to the lowest in 19 months, according to a Persian Gulf official with knowledge of the kingdom’s energy policy.

“Today the market’s attention turns back to Chinese macro numbers,” said Andrey Kryuchenkov, an analyst at VTB Capital in London, who predicts Brent will struggle to advance to more than $113 a barrel.

Brent for February settlement dropped as much as $1.64 to $110.25 a barrel, it lowest since Dec. 31, on the London-based ICE Futures Europe exchange and was at $110.41 at 1:01 p.m. local time. Prices are 0.8 percent lower this week. The European benchmark crude’s premium to West Texas Intermediate shrank to $17.24 a barrel earlier, the narrowest gap since Sept. 21.

WTI crude for February delivery was at $93.14 a barrel, down 68 cents, in electronic trading on the New York Mercantile Exchange. It increased 72 cents to $93.82 yesterday, the highest close since Sept. 18. Prices are little changed this week.

China Inflation

China’s consumer price index rose 2.5 percent in December from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 2.3 percent median estimate in a Bloomberg News survey of 42 economists and a 2 percent gain in November. The decline in the producer-price index eased to 1.9 percent.

Saudi Arabia’s production slid 4.9 percent to 9.025 million barrels a day last month as booming U.S. output and recovering shipments from Iraq threaten to oversupply the global oil market, the Persian Gulf person said, asking not to be identified because the information is confidential. The 465,000 barrel cut is the biggest monthly drop since November 2008, when the country and other members of the Organization of Petroleum Exporting Countries reduced supplies amid a global recession.

“The production cuts from Saudi Arabia will help to stabilize oil prices around current levels,” said Michael Poulsen, an analyst at Global Risk Management Ltd. in Middelfart, Denmark. “Fundamentals currently show a well- balanced market. Markets are waiting for an unknown trigger to send prices in either direction.”

WTI may rise next week on optimism global economic growth will accelerate, according to a Bloomberg News survey of analysts and traders. Fourteen of 28 respondents, or 50 percent, said crude will advance through Jan. 18. Nine in the survey, or 32 percent, predicted a decline and five forecast little change.

-- Editors: Rachel Graham, Raj Rajendran

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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