Brent crude oil futures closed near flat and US crude fell about 1 percent in choppy trading on Wednesday as weak US economic data and worries about the euro zone's finances outweighed a drawdown in US crude inventories. Markets are awaiting a policy meeting of the Organisation of the Petroleum Exporting Countries (Opec) on Thursday in Vienna, with the producer group anticipated to keep its current output target of 30 million barrels per day intact.
Prices surged to session highs in the morning after US government data showed that domestic crude stockpiles edged down 191,000 barrels last week, the second straight week of declines. The drawdown, though smaller than expected, included a drop from record levels in stocks at the Cushing, Oklahoma, delivery point for US-traded crude futures.
The report from the US Energy Information Administration also showed refinery operations shot up to 92 percent of capacity, the highest since August 2007. While supportive, the report failed to overcome dimmer prospects for oil demand after a drop in US retail sales in May for a second straight month in the world's largest economy.
In London, ICE July Brent crude settled at $97.13 a barrel, just a cent lower but its fifth consecutive drop and marking a fresh 16-month low. Brent has fallen 24 percent from its year high of $128.40 hit in March. US July crude slid 70 cents to close at $82.62 a barrel, the lowest settlement for US front-month crude since October 6 last year. US crude has dropped 25 percent from its year high of $110.55 also struck in March.
Brent's premium against US crude widened to $14.51, after narrowing to $13.82 Tuesday on transatlantic spread play. Brent's volume was 11 percent above its 30-day average, but much lower than Tuesday's level, when it hit 83 percent above that average, according to Reuters data. US volume was near its 30-day average.
The Relative Strength Index for both contracts remained below the 30 threshold that indicates oversold markets, according to Reuters data. Brent logged in at 22, having been last above 30 on May 28 while US crude posted at 23, having been below 30 since May 11. "Oil futures remain in an oversold condition, but the downtrend is persisting because of weaker demand," said Rich Alexander, senior broker at the Zaner Group in Chicago. Ahead of the Opec meeting, price hawks called on Saudi Arabia, the group's top exporter, to rein in excess production.
"We think that given the economic situation above all in Europe, there is a serious threat that prices might fall drastically and so our policy is to defend the production ceiling agreed in December," said Venezuelan Oil Minister Rafael Ramirez. Opec and the US government agreed on Tuesday that global oil markets could weaken further in the second half of the year, with prospects for demand dimming.
"We don't anticipate a change in Opec quotas at the Vienna meeting as we still expect the Saudis to go their own way in maintaining output at a high enough level to meet needs of all buyers," said Jim Ritterbusch, president of trading consultancy Ritterbusch & Associates in Galena, Illinois. Euro zone worries persisted, with Greek parliamentary elections at the weekend likely to drive further volatility in the markets, analysts said.
The elections, which may determine whether Greece stays in the euro zone, are weighing on crude prices because further chaos in the region may affect global oil demand. While oil prices rose on the US inventory report, "problems are still hobbling Europe, although some of the strains may be off after the Greece elections," said Mark Waggoner, president of Excel Futures in Bend, Oregon.
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