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Sep 25, 2016

OIL FUTURES: Holding Near 9-Month Highs, Amid Demand Worries

Published: Feb 22, 2012

By David Bird

NEW YORK (Dow Jones)--Crude oil futures prices were little changed near 9-month highs Wednesday, as traders cautiously eyed signs of a slowdown in manufacturing in Europe and China.

European benchmark ICE Brent crude oil was up slightly from Tuesday's level when prices topped $121 a barrel for the first time since May. Brent has been on a tear this month, with front-month prices gaining nearly 10%, or $11 a barrel, and registering gains 14 of the last 16 trading days, as buyers of Iranian oil seek alternative supplies.

Iran responded to a European Union embargo on oil purchases, set to take effect this summer, by cutting sales to the U.K. and France and threatening similar action for other countries. Tehran's largely symbolic move, so far, impacts few barrels, "but it creates worries about what can happen further down the road," said Tom Bentz, director at BNP Paribas Prime Brokerage.

Sanctions imposed by the U.S. call for Iran's customers to show that they have reduced oil purchases, and that has a started a scramble for replacement barrels for some Asian buyers, at a time when supplies from Yemen, South Sudan and Syria are disrupted.

Light, sweet crude oil futures for April delivery on the New York Mercantile Exchange were 48 cents lower at $105.77 a barrel, after settling at the highest level since May 4 on Tuesday. Nymex crude has gained 5% over the past four days. ICE Brent for April was 28 cents higher, at $121.93 a barrel.

"This market is overbought, overstretched to the upside," said Bentz.

Traders said worries over signs of slowdown in China - the engine of growth for global oil demand - and in Europe may trigger a pause in recent gains.

The preliminary HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, rose to 49.7 in February from a final reading of 48.8 in January. But the index remained below 50, an indication that manufacturing activity continued to fall.

Meantime, business activity in the euro zone contracted unexpectedly in February, reviving fears that the region is heading for recession. Markit Economics said Wednesday its composite purchasing managers' index for the 17-nation currency bloc fell to 49.7 in February after a rebound to 50.4 in January. A reading below 50 means activity is contracting.

"This does not bode well for oil demand," said Matt Smith, analyst Summit Energy.

The International Energy Agency expects sluggish 2012 oil demand growth of just 0.9%, with 4% growth in demand from China, offsetting declines elsewhere. Oil use in the five-main European nations is expected to drop 2.6% from a year ago.

U.S. traders are expecting oil inventory data due out at 11 a.m. EST Thursday from the Energy Information Administration to show crude oil inventories rose 300,000 barrels last week, while refiners lifted operations relative to capacity by 0.1 percentage point. Gasoline stocks are expected to rise 300,000 barrels, while distillate stocks (diesel/heating oil) are expected to drop 800,000 barrels. The American Petroleum Institute, a trade group, releases its inventory data at 4:30 p.m. EST Wednesday. Both sets of data are delayed by the Presidents Day holiday Monday.

March-delivery heating oil futures were 0.11 cent higher, at $3.2404 a gallon, after settling Tuesday at the highest level since May 2.

Reformulated gasoline blendstock for March was 2.32 cents lower at $3.047 a gallon, after settling Tuesday at a seven-month high.

-By David Bird, Dow Jones Newswires; 212-416-2141;

EIA report for week ending 5-20-2016 Our prediction for week ending 5-27-2016
2825 2913
Weekly change
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Commodity Prices ($)

Natural Gas4.167
Crude Oil93.64
Heating Oil2.9017
RBOB Gas2.8118