Brent crude prices rose on Monday in choppy trade, hitting a three-month peak on concerns about North Sea supply and Middle East tensions, while fears about a slowing global economy checked gains. US crude closed lower for a second straight session and Wall Street equities slipped after six days of gains, weighed down by data showing Japan's economy expanded in the second quarter at half the pace expected.
A separate report showing Greece's economy contracted by 6.2 percent on an annual basis in the quarter also fanned concerns about economic growth. Brent jumped more than $2 and US crude more than $1 early in the session on support from tightening North Sea supplies and Middle East tensions, including an intensifying debate in Israel on whether to strike Iran's disputed nuclear program.
A weak dollar also supported oil's early surge, along with continuing hopes that signs of economic weakness will spur central banks to stimulate a sputtering global economy. Expected North Sea September production curbs and the sensitivity to Middle East supply disruptions helped increase Brent's premium over US crude to $20.87 a barrel based on settlement, after reaching $21.33 intraday.
Those factors also sent front-month Brent's price premium to the nearby month to $2.02 intraday, a 2012 high, ahead of the September contract expiration on Thursday. Brent September crude rose 65 cents to settle at $113.60 a barrel, the highest settlement since May 3. Monday's $115.11 peak was the highest intraday price since May 4.
"The likelihood of some sort of intervention to stimulate economies is supporting the market," said Christopher Bellew, an oil broker at Jefferies Bache in London. "Also the North Sea, Iran and the Middle East are still a factor." US September crude settled 14 cents easier at $92.73 a barrel, below the $92.91 100-day moving average after reaching $94.14. Crude futures trading volumes were tepid, remaining below 30-day averages in post-settlement trading.
"Weak economic data from Japan is a concern as Japan is a big consumer of oil," said Phil Flynn, analyst at Price Futures Group in Chicago. "On the upside, oil futures have been supported by geopolitical concerns in the Middle East," Flynn said. Brent crude especially is being supported by expectations of shrinking North Sea production, elevating the price of the front-month contract versus the nearby contract and contracts for later delivery, a structure known as backwardation.
North Sea crude oil production will fall about 17 percent in September from August, mainly due to a drop in Forties crude output with the Buzzard field offline for maintenance. US Crude oil and gasoline stockpiles were expected to have fallen last week, with distillate stocks edging up slightly, a Reuters survey of analysts showed on Monday. The North Sea output drop comes with the European Union's embargo on Iranian oil in its second month as the West's dispute with Iran over Tehran's nuclear activities drags on.
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