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March 8, 2013 4:55 pm
The benchmark global oil price dipped below $110 to its lowest level of the year on Friday as the reopening of a North Sea pipeline system eased supply concerns.
ICE April Brent futures fell as much as 1.6 per cent to a low of $109.14 in morning trading before recovering slightly to $109.99, a fall of 1.2 per cent on the day by midsession in London.
The 90,000 barrel a day Brent pipeline system, which brings North Sea oil to the UK, was reopened on Thursday after being closed for five days for safety checks following a leak.
The pipeline connects the Brent oil fields, which are the source of one of the four North Sea blends referenced in Brent contracts, with buyers.
Scheduled refinery maintenance is also expected to weigh on European demand for crude in the short-term while index tracking funds that invest in Brent futures are beginning to sell April futures and buy May futures in preparation for the expiry of the front-month contract.
“The price move is a combination of a resumption of supplies [from the Brent pipeline system], index rolls, which started last night, and the impact of refinery maintenance,” said Amrita Sen, an analyst at Energy Aspects in London.
Brent futures had rallied strongly at the start of the year, topping $119 in early February and generating concern that high energy prices could curtail global economic recovery as well as renewed discussion about the role of speculation in the oil market.
The retreat from February highs, however, has come as other risk assets such as global equities have hit cyclical highs.
The fall in Brent futures led to a narrowing of the spreads between Brent and other global crude benchmarks.
Brent’s premium to Dubai crude fell 80 cents to $4.35, its lowest level since mid-January.
A smaller spread should encourage more Brent-linked oil from the Atlantic Basin to be shipped to Asia, where buyers can also opt to import Dubai-linked crude from the Middle East.
The premium of Brent to West Texas Intermediate, the US benchmark, fell more than a dollar to a low of $18.23, its narrowest since the start of February.
US oil has been trading at a discount to Brent because surging production of shale oil has created a glut of supply.
April WTI futures eased 0.2 per cent to $91.36 on Friday but the market appeared little affected by data from the Energy Information Administration, which showed the stock of crude oil at Cushing – the delivery point for WTI – had climbed to its highest level in a month in the week to the start of March.
“The EIA report was bearish,” said Gareth Lewis-Davies, an analyst at BNP Paribas in London. “Stocks at Cushing and in the US a whole are rising and there is no sign of supply abating but the market seems to be ignoring it.”
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