Crude Futures Regain Some Ground But Further Downside Likely
02/22/2013| 05:38am US/Eastern
By Ben Winkley
LONDON--Crude oil futures Friday regained some of the ground lost in the two previous sessions' heavy selling, but many analysts expect further downside before any consolidation.
At 1012 GMT, the front-month April Brent contract on London's ICE futures exchange was up 62 cents at $114.15 a barrel.
The front-month April light, sweet crude contract on the New York Mercantile Exchange was trading 6 cents higher at $92.90 a barrel.
Both contracts are headed for their biggest weekly loss since the first week of December. Consequently, the price differential between the two, known as the spread, has been mostly unaffected by this week's fluctuations and has remained robustly above $20 a barrel as bottlenecks continue to keep a lid on U.S. prices.
Thursday's U.S. oil-stocks data was mildly bearish as crude again built up at the Nymex delivery point of Cushing.
The broad sell-off this week is bringing prices more in line with market fundamentals, Goldman Sachs analysts said in a note. Goldman said the strong rally experienced earlier in the year was driven mostly by forward-looking survey data. Now, uncertainty over the U.S. Federal Reserve's commitment to monetary easing, and continued weak economic signals from Europe have combined to shake confidence.
With macro headlines likely to guide the oil market, there was an early-day boost from an expectation-beating surge in German business confidence.
Forthcoming events are catching market participants' attention.
Weekend elections in Italy will go some way to answering questions about the progress of European fiscal reforms, and next week the P5+1 group meets with Iran for talks on its atomic program. The talks will have a bearing on the price of Brent, particularly, as the outcome could either reinforce or reduce the contract's risk premium.
Further ahead, the March 1 deadline for U.S. federal budget reductions, known as sequestration, is likely to come sharply into focus next week. The last oil-market sell-off, in December, coincided with uncertainty about the previous U.S. budget stalemate.
The ICE's gasoil contract for March delivery was down $2.00 at $979.50 a metric ton, while Nymex gasoline for March delivery was up 176 points at 3.0541 cents a gallon.
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