Brent crude edged down to just below $93 a barrel on Wednesday, as heightened concerns that European leaders would fail to resolve the region’s crippling debt crisis at a key meet this week offset worries about tighter North Sea supplies.
Caution was high on investors’ minds after Germany staunchly opposed the idea of sharing the region’s debt, dampening expectations of a bold move from the summit of European leaders to halt a contagion from the 30-month long debt crisis.
Brent crude edged down 10 cents to $92.92 by 0235 GMT. U.S. crude was at $79.50, up 14 cents, supported by expectations of a drop in domestic oil stocks.
“Expectations for that (a price direction from the EU meet) seems to be weakening as the day goes by,” Michael Creed, an economist at the National Australian Bank said.
“The EU will continue to kick the can down the road and we’re unlikely to see any real resolution.”
German Chancellor Angela Merkel stamped out the idea of common euro zone bonds – favoured by France, Italy and Spain, saying that Europe would not share total debt liability “as long as I live”.
But lower North Sea output due to a workers’ strike is expected to limit losses.
Brent on Tuesday posted its largest daily percentage gain since March 1 and settled at above $93 for the first time in a week after Norway’s Statoil said it will shut four more oil platforms in the North Sea. This will reduce output at the world’s eighth largest oil producer by 150,000 barrels per day.
Brent’s price jump stretched its premium over West Texas Intermediate (WTI) prices to more than $13 on Tuesday, the widest in more than a week.
“Price improvements this week are due to oil being oversold last week,” NAB’s Creed said, adding that expectations of a fall in U.S. crude stocks also cast a slight bullish hue on oil.
U.S. crude stockpiles were forecast to have fallen by 500,000 barrels last week due to a drop in imports, an extended Reuters poll of analysts found, ahead of data from the Energy Information Administration to be released.
But data from the American Petroleum Institute (API) late on Tuesday showed an unexpected rise of 507,000 barrels last week.
Oil is on track to drop more than 20 per cent in the second quarter, the largest three-month fall since the financial crisis in 2008, due to demand concerns triggered by economic worries.
U.S. and EU sanctions on Iranian crude will start this week, but the impact is expected to be marginal as higher output from OPEC helps fill the shortfall, Creed said.
“The sanctions have quite a lot of holes so Iran will still be supplying quite a bit of volume,” he said.
Iran on Tuesday urged the European Union to reconsider an embargo on Iranian oil that comes into effect on July 1, saying it wanted engagement and not confrontation with the bloc.
Geopolitical tensions rose in the Middle East after NATO allies condemned Syria for shooting down a Turkish military plane.