Hurricane Sandy is pictured off the east coast of the United States in this October 28, 2012 NASA handout satellite image. (Reuters)
Oil slipped on Monday, with Brent near $109 a barrel, as refineries along the US East Coast lowered run rates ahead of approaching Hurricane Sandy, reducing crude use in the world’s largest oil consumer.
The run cuts come after a rise of nearly six million barrels in U.S. crude stocks in the week to October 19. The world’s spare oil production capacity outside of Iran also rose in the last two months as U.S. gasoline demand waned and oil use for power generation fell in the Middle East, the U.S. government said in a bimonthly report.
Brent crude had fallen 33 cents to $109.23 a barrel by 0330 GMT, after posting a 0.5 per cent loss last week. U.S. crude was down 46 cents at $85.82.
“With refineries cutting runs, we’re likely to see a build-up in crude stocks which could be driving bearish prices at the moment,” said Michael Creed, an economist at National Australia Bank in Melbourne.
Hurricane Sandy, which could become the largest storm ever to hit the US, is expected to slam into the East Coast on Monday night. Oil refineries there began to cut rates on Sunday, spurred by fears of power outages.
Six East Coast oil refineries representing 1.19 million barrels per day — or seven per cent of total U.S. capacity — could potentially be hit by the deadly storm.
U.S. heating oil and RBOB gasoline futures and their crack spreads rose as speculators expect fuel supply to tighten and are betting on wider price spreads between products and crude.
“The buying of crack spreads has put downside pressure on crude,” said Yusuke Seta, a commodity sales manager at Newedge Japan.
A crack spread is the price differences between an oil product and crude. To buy the spread, investors buy the oil product contract and sell crude simultaneously.
Speculators have also cut their net long U.S. crude futures and options positions to the lowest level in three months in the week to Oct. 23 as prices fell by almost six per cent, the U.S. Commodity Futures Trading Commission said.
The CME said it would suspend floor trading on Monday at its NYMEX world headquarters ahead of Sandy, although the move is unlikely to affect trade as higher-volume electronic dealing will operate normally.
The impending restart of Britain’s largest oilfield and a quick recovery in Nigerian crude output also limited Brent’s gains.
The Buzzard field in the North Sea is expected to restart by Monday and its operator, Nexen, has said it will return to full operations over the next two weeks.
Nigerian oil exports in December are expected to reach the highest level since May, pointing to a swift recovery of production after floods knocked out a fifth of the output in the top African producer.
In Iraq, exports of Basra Light are set to hit their highest-ever level at 2.531 million barrels per day in November, traders said and a preliminary programme showed.