Oil steady at $85 on industry data, US inventories

US crude stocks spike by 7.1 million barrels

• Reuters
• Published: 16:23 October 23, 2014
• 

London: Brent crude oil stabilised around $85 a barrel on Thursday as strong European and Chinese data offset a slide triggered by a higher-than-expected build in US

crude stocks.

Industry activity in the euro zone grew much faster than analysts predicted in October, a purchasing managers’ index of 52.2 showed on Thursday.

Growth in Chinese industry quickened to a three-month high in October, with the HSBC/Markit manufacturing PMI rising to 50.4 from 50.2 in September.

But overall growth in the world’s largest oil importer is at its slowest since the global financial crisis in 2009, and risks missing its official target for the first time in 15 years.

“Prices are back under pressure, and the stabilisation could be short-lived,” said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt.

Both benchmarks fell sharply on Wednesday after USBrent crude for December was up 25 cents at $84.96 a barrel by 1045 GMT. US front-month crude was up 20 cents at $80.72 a barrel.

inventory data showed a large climb in crude stocks, with US

crude ending the day more than $2 down.

“Brent is probably going to fall below $82 at some point, and it would be a brave man who called the bottom of this market,” said Christopher Bellew, an oil broker at Jefferies.

US crude inventories surged by 7.1 million barrels last week to 377.68 million barrels, more than double the 2.7-million-barrel increase that analysts had forecast, data from the Energy Information Administration showed.

The Organization of the Petroleum Exporting Countries has not given any clear signals that it will cut its output at a Nov. 27 meeting, exacerbating fears of oversupply.

“I don’t think there will be a cut,” said Commerzbank’s Fritsch. “Opec members fear that a cut alone will not push the price up — it will just make more room for non-OPEC supplies.” Sharp growth in crude output from US shale projects has eroded OPEC’s dominant market position, and could lead to a sustained period of prices below OPEC’s recent target of $100 a barrel.

“We may well be in for oil prices between $70 and $80 in the coming months,” said Bellew.

Estimates vary widely regarding the price at which US

shale output can remain profitable. Analysts at Bernstein Research said on Monday about a third of this production would become uneconomical at $80 a barrel.

But the International Energy Agency said last week only around 4 per cent of US shale production requires a price of at least $80 a barrel.

Saudi Arabia, OPEC’s top producer, increased its output to 9.7 million barrels per day (bpd) in September, from just under 9.6 million bpd in August, an industry source said.

The kingdom has previously sent signals that it is comfortable with markedly lower oil prices.

Libya’s Opec governor Samir Kamal said on Wednesday that Opec had to reduce oil output by at least 500,000 bpd to curb oversupply of about 1 million bpd.

But Libya is the only one of four African Opec members calling for a supply cut.