ICE Brent futures strengthen despite bearish sentiment

ICE Brent futures strengthen despite bearish sentiment

London (Platts)--18Sep2006

ICE Brent futures firmed on Monday morning shrugging off a lack of
bullish news in a market where all the support remains on the downside. The
market remains unsure of whether new lows are there to be tested or whether
there would be a significant bounce, brokers said, but Monday has seen some
fund buying activity as it looks to test the significant resistance level of
$63.85/barrel.
However, funds are continuing to abandon long positions in the crude
complex. The latest Commodity Futures Trading Commission released Friday
showed that Non-commercials, which are primarily comprised of hedge funds,
liquidated 16,938 contracts of crude futures and options as of the week ending
September 12. Non-commercials were still long 52,659 contracts of crude
futures and options, according to the Commitments of Traders report.
October Brent was trading at $63.67/barrel at 1125 London time (1025 GMT)
34 cents higher than Friday's close at $63.33/barrel. Last week saw the price
of crude futures fall for five trading sessions in succession dipping to a
weekly low of $61.96/barrel.
There are technical indicators suggesting that the market has been
oversold, said Petromatrix's Olivier Jakob in a recent report, despite
fundamental indicators which are weighing heavily towards the bearish side.
The dialogue surrounding Iran's uranium enrichment program remains
positive towards a resolution without sanctions.
UN nuclear chief Mohammed ElBaradei said Monday he remained "hopeful"
Iran and Europe would be able to move towards "long-overdue negotiations," the
AFP reported.
"I remain hopeful that through opening dialogue between Iran and its
European partners conditions will be created to engage in a long-overdue
negotiation," ElBaradei said.
Earlier, French President Jacques Chirac urged world powers not to refer
Iran to the UN Security Council over its nuclear program, at the same time
calling on Tehran to give up uranium enrichment.
Also weighing heavily on the crude complex is the beginning of a
potentially busy refinery maintenance season with a number of large European
refineries with confirmed stoppages including the Chevron refinery in
Pembroke, the BP facility in Gelsenkirchen and the Exxon refinery in Antwerp.
Adding to the pressure on crude demand is the weakness of refinery
margins which are beginning to erode as middle distillate crack spreads, which
had been holding profits together, weaken. Gasoil demand, which should assume
the role of the season driver for crude, remains poor as storage tanks reach
capacity following high levels of demand in August where German gasoil demand
was 10% higher than the same period last year. The falling price of gasoil and
the weakness of gasoline crack values has left refineries beginning to
seriously look at run-cuts in Europe.

OPEC CRUDE DEMAND
In yet another bearish outlook for the oil markets, OPEC on Friday
trimmed its estimate of world demand for its oil next year, and warned that
recent data showed consumption had been weaker than expected in the first half
of this year.
OPEC said in its latest monthly oil market report that it now expected
world oil demand to average 84.38 million b/d in 2006, down from a previous
projection of 84.53 million b/d.
"If the decline in the oil price persists it suggests that OPEC may soon
announce a cut in its production quotas, which if the current decade is a
reliable guide could be as large as 2 million barrels per day," said a recent
Deutsche Bank Commodities Research report.
--Jonathan Davies, jonathan_davies@platts.com

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