Brent crude prices fell 2 percent on Friday as Europe's debt problems and a dollar index rebound extended oil's decline a day after consuming nations announced they were tapping strategic reserves. Dropping 7 percent for the week, Brent's premium to US crude fell below $14 a barrel intraday, from above $19 on Wednesday, the day before the International Energy Agency made a surprise announcement to release oil from strategic reserves.
The premium has contracted from its record $23.34 reached on June 15. US crude ended slightly higher on Friday, after seesawing and briefly dipping below $90 a barrel, finding support above Thursday's low trade. The euro fell versus the dollar as investors worried that Greece's parliament may not pass austerity measures needed for the country to secure more bailout funds.
"The strengthening of the dollar index is helping pressure oil and we're seeing an unwinding of the Brent-WTI spread because of the release of the strategic reserves," said Phil Flynn, analyst at PFGBest Research in Chicago. "The Brent-WTI spread coming in indicates that the release was justified," he added. ICE Brent crude for August fell $2.14 to settle at $105.12 a barrel, after swinging between $103.62 and $108.70 after the previous session's nearly 6 percent slide. It was a second straight weekly loss for the contract.
Brent trading volumes were heavy, eclipsing US crude for a second straight day, after hitting a record over 1.2 million lots on Thursday. The consuming nations' reserves release sent Brent into contango, with front-month Brent ending at a 19-cent discount to the September contract, after closing Thursday at a 21-cent premium to the second month.
US August crude edged up 14 cents to settle at $91.16 a barrel, but front-month crude posted a third straight weekly loss, down 2 percent. Money managers slashed their net-long US crude futures and options positions in both New York and London in the week to June 21, the Commodity Futures Trading Commission said on Friday.
The relative strength index for both Brent and US crude approached the 30-point mark, a signal that a contract has been oversold, following the sell off IEA announcement, although WTI edged up slightly up after the late day price rally. US gasoline futures settled lower, losing 2.1 percent, with heating oil, the distillate benchmark, ending 1.1 percent lower. US refined products prices had been reacting to pricier Brent crude futures in recent months.
The International Energy Agency (IEA) announced on Thursday a release of 60 million barrels of government-held stocks over the next 30 days. Leading commodities banks J.P. Morgan and Goldman Sachs cut their oil price forecasts following the IEA announcement, but Bank of America Merrill Lynch kept its forecast for the second half unchanged at $102 a barrel.
Saudi Arabia, the world's leading crude oil exporter, has yet to make any comment on the release. The IEA move came after the Organisation of the Petroleum Exporting Countries last month could not reach agreement on a boost to production targets. But Saudi Arabia had pledged to increase output to meet demand.
"Saudi Arabia will be crucial - will it stick to its promise to increase its output to 10 million barrels a day or not?" said Carsten Fritsch, an analyst at Commerzbank in Frankfurt. "If they don't, then the IEA decision will have backfired. Maybe they will scale back production in July after this stock release." US Treasury Secretary Timothy Geithner said on Friday that the IEA's decision was "sensible policy." "It will provide some modest help and relief" to the US economy, Geithner told reporters after meeting local business leaders in Manchester, New Hampshire. "It was a prudent use of existing reserves." Better-than-expected US durable goods data provided support to US crude futures in the early going on Friday.
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