Deficit in North Sea supply makes oil prices to increase above $114

According to the forecasts North Sea supply deficit will ease when maintenance ends and winter demand and low product inventories will support the prices. IEA, Japan, and South Korea say that there is no need for reserves to be released.

On Monday the price of Brent crude oil increased to around $114 per barrel. The hike was caused by tight North Sea supplies before the closure of a major UK oilfield for maintenance and on expectations of increasing demand before the northern hemisphere winter.

Buzzard, the largest oilfield in Britain, which is the single biggest contributor to the Forties crude oil stream and usually sets the price of the Brent benchmark, will be closed next month, withholding production until mid-October.

Output from major oilfields in North Sea is expected to decrease by about 17 percent in September, which will result in higher prices for nearby crude. The deficit, however, should be temporary and according to the expectations of traders pressure should ease once the maintenance is completed.

Brent for October went up 77 cents at $114.48 a barrel by 1045 GMT after dropping more than $2 on Friday because of expectations that the U.S. might release some of its reserves. U.S. light crude oil was steady at $96.01.

“Oil prices are recouping some of the losses they suffered on Friday,” the oil analyst at Commerzbank, Carsten Fritsch, said.

“But there are plenty of reasons why oil prices should fall. The supply outages in the North Sea, which are currently lending support to the Brent price, are merely temporary in nature.”

Morgan Stanley analyst Hussein Allidina backed him up by saying that North Sea oil supplies should increase when maintenance is completed.

“Increased supply from the Forties stream, planned refinery maintenance in the Atlantic Basin and a potential return of Sudanese and South Sudanese supply portend a more comfortable fourth-quarter crude balance,” Allidina commented.

MIDDLE EAST

Brent has hiked about a third in two months. This is prompted by concerns over supply and a dispute between Iran and the West over the nuclear programme of the Islamic Republic.

Israeli politicians have increased their discussions this month which means that Israel might attack the nuclear facilities of Iran before the U.S. presidential elections in November.

Such an attack could eventually bring about the end of the Gulf of Hormuz. A fifth of the world’s oil exports flow through there.

Senior Israeli officials have stated that no final decision about whether to attack Iran has been taken and the military elite is reluctant to authorize any attack without the full support of the U.S..

Michael Poulsen, global Risk Management analyst, stated that Israeli talk of a pre-emptive attack on Iran was in favor of oil.

“We expect the Israeli rhetoric to remain strong in the coming months to maintain pressure on its main ally in the upcoming U.S. presidential election,” Poulsen said.

Deutsche Bank analysts said in a weekly note that oil demand has been down this year because of the global economic recession, but with Europe and the U.S. heading towards winter, low gasoil inventories may provide major boost to crude.

Expectations for economic growth, particularly in the United States, the world’s largest oil consumer, are of major importance to the outlook for fuel demand.

Investors are looking to the minutes of the last Federal Open Market Committee’s (FOMC) July 31-Aug. 1 meeting this week, which should provide some insight about the view of the Federal Reserve on U.S. economic growth and the chances of further monetary easing.

Ben Bernanke, the Federal Reserve Chairman, will speak at a symposium in Jackson Hole, Wyoming on Aug. 31. Some analysts expect him to prepare the scene there for a third round of quantitative easing (QE3).

Nevertheless, economists say that the chances of QE3 have faded, as U.S. economic figures have improved, removing one possible support for oil and commodity prices.

Oil prices fell last week after a source said the White House could use the U.S. Strategic Petroleum Reserve to avert high energy costs from weakening the success of sanctions against Iran.

The idea, however, was firmly rejected by the head of the International Energy Agency (IEA), the adviser to industrialised countries on energy policy, as well as Japan and South Korea.

Market concerns were deepened by incidents of unrest in the Middle East, especially in Libya where a car bomb killed two people on Sunday and an attack on a mosque in Yemen killed seven.