Oil Futures Fall; Morgan Stanley Sees Supply Recovery

Oil dropped for a third day in London amid speculation that talks between Sudan and South Sudan may lead to the resumption of crude exports.

Brent futures declined as much as 0.5 percent, while the U.S. benchmark West Texas Intermediate slipped 0.7 percent. Sudanese President Umar al-Bashir and South Sudan’s Salva Kiir will meet in the Ethiopian capital Addis Ababa on Jan. 13, having agreed last week to set up a demilitarized zone along their border “without further delay.” Morgan Stanley said that Brent will come under pressure as demand eases after winter in the Northern Hemisphere and supplies in Angola, Nigeria and South Sudan are restored.

“The improved supply-demand balance should put marginal downward pressure on Brent prices over the next few months,” Hussein Allidina, head of commodities research at Morgan Stanley in New York, said in a report. “We assume production will return from South Sudan through 2013.”

Brent for February settlement slipped 43 cents to $110.88 a barrel on the London-based ICE Futures Europe exchange at 1:34 p.m. local time. The European benchmark was at a premium of $18.23 to WTI, in line with the closing level on Jan. 4, the narrowest in more than three months.

Crude for February delivery declined as much as 64 cents to $92.45 a barrel in electronic trading on the New York Mercantile Exchange. The contract advanced to $93.09 on Jan. 4, the highest settlement since Jan. 2.

South Sudan

South Sudan, which gained independence from Sudan in July 2011, halted its 350,000 barrel-a-day crude production last January after accusing authorities in Khartoum, the Sudanese capital, of stealing $815 million of its oil. Sudan said it took the crude to recoup unpaid transportation and processing fees. That dispute and others, including differences over border security, brought the neighbors to the brink of war in April.

Prices in New York capped a fourth weekly gain on Jan. 4 after a Labor Department report showed employers in the U.S. added 155,000 workers in December, exceeding the 152,000 median forecast in a Bloomberg survey.

Last week’s rally took WTI futures to technical resistance along the 50-week moving average, according to data compiled by Bloomberg. This indicator is around $93.70 a barrel today. Sell orders tend to be clustered near chart-resistance levels.

Hedge funds raised bullish bets on WTI to the highest level in 11 weeks before lawmakers passed a bill to undo automatic tax increases that threatened the U.S. economy. The House of Representatives approved a Senate bill at 11 p.m. on Jan. 1, protecting 99 percent of households from higher income taxes.

Money Managers

Money managers boosted net-long positions by 11 percent in the seven days ended Jan. 1 to the most since Oct. 16, the Commodity Futures Trading Commission’s Commitments of Traders report showed on Jan. 4.

In London, hedge funds and other money managers raised bullish bets on Brent crude to their highest level in nine months, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 139,111 lots in the week ended Dec. 31, the London-based exchange said today in its weekly Commitment of Traders report.

Daily exports of North Sea Brent, Forties, Oseberg and Ekofisk crudes, which make up the Dated Brent benchmark, will increase by 16 percent in February from this month, loading programs obtained by Bloomberg News show. Exports will be 942,857 barrels a day versus 812,903 barrels in January, according to the plans.

Dated Brent is used to price more than half of the world’s oil supplies. Loading programs are monthly schedules of crude shipments compiled by field operators to allow buyers and sellers to plan their supply and trading activities.

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