Oil futures turned mixed in late trading on Wednesday after leaping to three-month highs on US government data showing a sharp drawdown in domestic crude stockpiles last week and amid worries about lower North Sea oil production. Trading was choppy and the pace accelerated late in the session, with US crude closing lower for the first time in four sessions. After turning negative late, Brent crude recovered and posted small gain for the day.
Hopes for more monetary stimulus from the US Federal Reserve to help keep economic growth from stalling kept US crude's losses in check. Expectations that the European Central Bank would act soon to help debt-strapped members of the euro zone helped Brent crude from falling to negative territory at the close.
In London, Brent crude futures for September delivery settled at $112.14 a barrel, edging up 14 cents. In the morning, it shot up to an intraday high of $113.27 a barrel, the highest since May 8, after the EIA data. US September crude closed at $93.35, down 32 cents. It hit a session high of $94.72, the highest since May 15. "Despite the big drawdown in crude stocks, US inventories are still above their five-year average," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
US crude oil stocks fell 3.7 million barrels to 369.9 million in the week to August 3, the Energy Information Administration (EIA) said, well above the forecast in a Reuters poll for a 300,000-barrels drawdown. The drawdown was smaller than the 5.4 million barrels reported by industry group American Petroleum Institute on Tuesday. Still, it reinforced a market view of tightening supplies in the world's biggest oil consumer. EIA data showed US crude stockpiles have fallen in eight of the past 10 weeks since May 25, when they reached their highest level in nearly 22 years.
The late surge in trading pulled up volumes, with Brent up 5 percent against its 30-day average and US crude up 7 percent, from its 3o-day average, according to Reuters data. Brent's premium against US crude rose to $18.79, after closing at $18.33 on Tuesday. "Today's larger-than-expected draws across the board have initially added to a complex already gaining strength, leading to new highs in the process," said Jay Levine, a broker at Enerjay Llc in Portland, Maine.
Brent has risen about 25 percent and US crude 21 percent since the end of June, partly on expectations the world's largest economies would take more measures to stimulate growth. Some signs of oversold or near oversold conditions after the extended price run-up had led some investors to trim their long positions, analysts said.
The four grades - Brent, Forties, Oseberg and Ekofisk - were scheduled to pump 720,000 barrels per day in September, down more than 50,000 bpd from the August level, due to oilfield maintenance and natural aging declines. The sharp cut in production from Britain's Buzzard oil field feeding the key Forties stream, which usually sets the price of the North Sea benchmark, could leave Brent open to a "Super Squeeze," said Swiss energy market analyst Olivier Jakob.
"We do not want to be short (of) the Brent front spreads until the end of the Buzzard maintenance, as the risk is just too great to see Brent being squeezed," Jakob said. The price spread between the September and October Brent contracts widened to $1.60, up from a backwardation of $1 last week, pointing to strong prompt demand.
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