Oil Near Two-Day Low on Forecast of Rising U.S. Supplies

Oil traded near the lowest closing level in two days in New York before data that may show inventories rose to an 11-month high in the U.S., the world’s biggest consumer of the commodity.

Futures for June settlement were little changed, having slipped as much as 0.3 percent. U.S. stockpiles increased 2.65 million barrels last week to 371.7 million, according to the median estimate of eight analysts surveyed by Bloomberg News before a government report tomorrow. The U.S. may still tap strategic reserves to limit price gains stoked by tension with Iran, with a release probably before a European Union embargo starts on July 1, Societe Generale SA said.

“There’s a moderate oversupply,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG in Vienna who predicts crude will retreat about $5 a barrel next month. “Supply concerns are fading despite the geopolitics.”

Oil for June delivery was at $103.48 a barrel in electronic trading, 37 cents higher at 1:14 p.m. London time on the New York Mercantile Exchange. The contract fell 77 cents to $103.11 yesterday, the June future’s lowest close in two days. Front-month prices are 4.2 percent higher this year.

Brent crude for June settlement on the London-based ICE Futures Europe exchange dropped as much as 61 cents to $118.10 a barrel. It was at $118.71 at the same time, leaving the European benchmark contract at a premium of $15.23 to New York futures. The difference was $15.60 yesterday, the most in six days.

Geopolitical Concern

“Without the geopolitical concerns, there would be no reason why Brent should trade above $110 at this time of year,” Loacker said.

Oil in New York is in a technical downtrend, according to data compiled by Bloomberg. On the daily chart, the top of a downward-sloping channel going back about two months is $104.53 a barrel today and represents price resistance, a level at which sell orders tend to be clustered.

U.S. crude stockpiles are forecast to climb for a fifth week to the highest since May, according to the Bloomberg survey. Gasoline supplies probably dropped 750,000 barrels last week, the survey showed. Distillate-fuel inventories, a category that includes heating oil and diesel, gained an estimated 625,000 barrels.

The American Petroleum Institute will release separate supply data today. The industry group collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Strategic Oil Release

A release of strategic oil stockpiles will probably happen in June, before the start of the sanctions on July 1, Michael Wittner, global head of oil-market research at Societe Generale in New York, said in a note dated yesterday. About 60 million barrels may be freed up, with only a “brief, temporary” lowering of prices, according to the report.

A decision to tap the reserves is “pretty likely” when the EU embargo starts, Seth Kleinman, a Citigroup Inc. analyst in London, said on a conference call yesterday. The Persian Gulf nation has threatened to shut the Strait of Hormuz, a transit route for a fifth of the world’s oil, in retaliation against sanctions.

Iran can compensate for lost EU markets by redirecting oil supplies to Asia if the bloc implements its ban, Deputy Foreign Minister Abbas Araqchi said yesterday in Astana, Kazakhstan.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE