Brent slips below $115 as U.S. eyes potential oil release
SINGAPORE, Aug 17 (Reuters) - Brent crude slipped below $115 on Friday as supply worries eased on a possible release of oil reserves by the United States while Israeli comments on Iran reduced fears of a potential conflict in the Middle East that could disrupt exports.
News that the White House is “dusting off old plans” for a potential reserve release helped benchmark contracts come off the previous session’s three-month highs.
Prices were also dampened by easing concerns of a supply disruption from the Middle East after Israeli President Shimon Peres downplayed the prospect of a unilateral strike on Iran.
Brent crude fell $1.08 to $114.19 a barrel by 0347 GMT, after sliding to as low as $114.12. The September contract which expired on Thursday ended at the highest since May 2. U.S. oil slipped 43 cents to $95.17, after settling $1.27 up.
The possible release of reserves “would definitely be the reason for the active Brent this morning,” said Ben Le Brun, a Sydney-based market analyst at OptionsXpress. “This is not bad news for global growth, since it will allow for more development and generally better the world economy.”
U.S. officials will monitor market conditions over the coming weeks, watching whether gasoline prices fall after the Sept. 3 Labor Day holiday, as they historically do, a source with knowledge of the situation said.
The United States has not yet held talks with international partners about a coordinated move. The source noted that Britain, France, Germany and other partner nations in the Paris-based International Energy Agency (IEA) were receptive to a potential release a few months ago when conditions were similar.
Investors, however, have yet to take the U.S. plan more seriously for Brent prices to ease significantly, according to analysts at ANZ.
“If investors start to take the U.S. plans more seriously we could see prices ease, especially in WTI, and Brent could head towards $113,” analysts at ANZ said in a note. “Otherwise the European benchmark is likely to trade between $114 and $120.”
Brent is poised to rise 1.5 percent for the week, gaining for five out of the past six weeks. The U.S. contract is set to gain 2.7 percent, the most in a month.
The European benchmark has risen more than a third in less than two months from the low for the year of $88.49, as worries about a conflict over Iran’s disputed nuclear programme escalate. Some of that worry eased as Israeli President Peres said on Thursday he trusted U.S President Barack Obama’s pledge to prevent Tehran from producing nuclear weapons.
Peres’ comments appeared to challenge Prime Minister Benjamin Netanyahu and Defence Minister Ehud Barak, who have both raised the prospect of a unilateral Israeli strike.
Investors remain worried that the situation may escalate.
“There are still tensions in the Middle East and that is something the markets are constantly aware and focused on,” said Le Brun. “Barring a lack of news coming out of the region, prices can be set to remain stable.”
Capping further losses were comments by German Chancellor Angela Merkel voicing support for ECB President Mario Draghi’s crisis fighting strategy, and pressed her European partners to move swiftly towards a closer integration of fiscal policies.
Merkel is pressing her partners to move towards a so-called fiscal union under which states would cede sovereignty over their budgets to Brussels instead of introducing common euro zone bonds to resolve the bloc’s three-year old debt crisis.
Brent will fall to $112.33 per barrel as it failed to break a resistance at $117.96, while U.S. oil is expected to break a resistance at $95.03 per barrel and rise towards $96.87, according to Reuters technical analyst Wang Tao.