Brent crude pared gains on Thursday as revived hopes for more stimulus from the US Federal Reserve faded and doubts about Europe's ability to address its debt crisis crept back in focus. Brent prices turned lower before settling 10 cents higher, then seesawed in post-settlement trading.
US crude retreated more than 1 percent and settled below its 200-day moving average after prices jumped to their highest since early May. "The market was looking exhausted at these higher levels after rallying for almost two months," said Michael Korn, energy broker at Skokie Energy in Princeton, New Jersey. "It's too early to say if the rally is over, but with the equity market pulling back today on signs another round of quantitative easing might not be imminent, it's not surprising to see crude oil falling back as well," Korn added.
Oil's rally was sparked after investor hopes for more Fed stimulus were reinforced when minutes from the latest policy meeting, released on Wednesday, suggested the central bank would be likely to act, "fairly soon" unless the economy improves considerably. But St. Louis Fed President James Bullard on Thursday dampened expectations for more easing with comments that the minutes were "a bit stale" and data had improved since then.
The euro pared gains against the dollar due to tough talk from the Dutch finance minister and German Chancellor Angela Merkel on staying firm about requiring austerity in order for debt-stricken Greece to get bailout. This weighed on oil. Brent October crude rose 10 cents to settle at $115.01 a barrel, having swung from $114.43 to $116.38.
An upcoming maintenance-related slide in North Sea oil production and heightened Middle East tensions helped Brent hit a three-month peak at $117.03 a week ago as its September contract headed to expiration and went off the board at $116.90 a barrel, the highest settlement since May 2. Brent has recovered from a low of $88.49 posted on June 22 after retreating from the 2012 peak at $128.40 hit on March 1.
US October crude fell 99 cents to settle at $96.27 a barrel, after reaching $98.29, highest since prices reached $102.72 on May 4. US crude has been recovering after sliding below $78 a barrel in late June. Disappointing data from China signalled that the slowdown in the world's biggest energy consumer and No. 2 oil consumer had extended into the third quarter. The HSBC Flash China manufacturing purchasing managers index (PMI) fell to 47.8 in August, its lowest since November, down from the 49.5 July flash and the 49.3 final reading. Even the flare-up of tropical storms in the Atlantic, with the potential threat to the US oil infrastructure in the Gulf of Mexico, was not enough to keep US crude moving higher. Tropical Storm Joyce formed on Thursday in the eastern Atlantic, the US National Hurricane Center said.
Tropical Storm Isaac weakened slightly near Puerto Rico and the Virgin Islands, but it was expected to strengthen into a hurricane before moving across the Dominican Republic and Haiti. The violent struggle in Syria and tensions over the dispute over Iran's nuclear program continued to raise the spectre of potential supply disruptions in the region. The US Navy is cutting short home leave for the crew of one of the aircraft carrier USS Stennis and sending them back to the Middle East next week to counter any threat from Iran, according to the official Navy News Service.
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