Middle East tensions keep oil above $98, $85/barrel not too far

Singapore: Brent crude stayed above $98 a barrel on Thursday, amid geopolitical concerns in the Middle East, although worries about ample supply and weak demand that dragged prices to 17-month lows in the previous session kept a lid on gains.

An escalation in the United States’ campaign against Islamic State militants with plans for air strikes for the first time in Syria and more attacks in Iraq have raised fears of reprisals, said Tony Nunan, oil risk manager at Japan’s Mitsubishi Corp.

[caption id=“attachment_88283” align=“alignleft” width=“380”]  Representational image. Reuters image[/caption]

“People are worried about unexpected consequences of an escalation with the potential of a greater reaction from jihadists,” Nunan said. “The geopolitical risk is not out of the woods. The potential situation does not look any better.”

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President Barack Obama told the American public on Wednesday that he had authorised air strikes in Syria, while boosting the number of U.S. advisers in Iraq and launching a U.S. training effort for Syrian rebels.

Brent crude for October delivery slipped for the sixth straight session, trading down 4 cents at $98.00 a barrel by 0554 GMT, after closing down $1.12 in the previous session. It hit an intraday low of $97.60 on Wednesday, its weakest since April 18, 2013.

U.S. crude fell 8 cents to $91.59 after falling to $91.22 in the previous day, the lowest since May 2, 2013.

“There’s quite a bit of speculation [in Brent]. The moves are exaggerated and we think the declines are a little bit overdone,” said Mark Keenan, head of commodities research at Societe Generale in Singapore.

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The bank is maintaining a trading range of $100-105 per barrel for Brent, Keenan said.

Oil prices on both sides of the Atlantic are down about 2 percent to 3 percent this week, dragged down by high global supplies at a time when demand is weak.

The Organization of the Petroleum Exporting Countries has cut its forecasts for demand for OPEC crude this year and next, pointing to a surplus of more than 1 million barrels per day in 2015 if OPEC keeps output at current levels.

OVERSUPPLY STORY

“OPEC cutting back demand is telling a story of oversupply, oversupply, oversupply and the economics of demand is not enough to raise prices,” said Jonathan Barratt, chief investment officer of Sydney investment advisor Ayers Alliance.

Underlining the surplus, data from the U.S. Energy Information Administration on Wednesday showed an increase in some U.S. oil product inventories.

Stocks of gasoline and distillates jumped by 2.4 million and 4.1 million barrels respectively in the week to September 5, compared with analysts’ expectations of a 157,000-barrel drop for gasoline and a 571,000-barrel increase for distillates, EIA data showed.

U.S. crude oil stocks fell by 972,000 barrels last week, smaller than analysts’ projections for a drop of 1.1 million barrels..

“We’ll see $85 a barrel sooner rather than later - in the next one or two months,” Barratt said, referring to U.S. oil.

Libya could amplify the oversupply concerns after Prime Minister Abdullah al-Thinni said oil production was expected to rise to 1 million barrels per day in October.

Investors are also keeping an eye on possible further sanctions against Russia over the crisis in Ukraine.

European Union envoys will meet later on Thursday to discuss whether to implement new sanctions on Russia over its involvement in fighting in Ukraine.

Energy companies, including Exxon Mobil Corp and BP Plc, could be banned from working on billions of dollars on hard-to-recover oil exploration in Russia in sanctions being considered by the U.S. and Europe.

Reuters