By Virginia Harrison, MarketWatch
SYDNEY (MarketWatch) — Crude oil futures edged lower in electronic trading Friday, weighed by a stronger dollar and uncertainty surrounding the European debt crisis and slowing global growth.
Crude oil for July delivery CL1N -0.66% shed 17 cents, or 0.2%, to $94.79 a barrel on the New York Mercantile Exchange during Asian trading hours.
Analysts at Barclays Capital said sovereign-debt concerns and macro-economic unease are driving the oil market, overshadowing underlying fundamentals.
“Those fundamentals are still tightening, with sharp reductions in the prospects for non-OPEC supply and resilient global demand indicating the likelihood of an increased supply gap in the third-quarter, in a world with a declining cover of inventories and spare capacity,” the analysts said.
The dislocation between Nymex-traded West Texas Intermediate (WTI) crude and ICE-traded Brent crude has pushed the Brent-WTI spread to record levels of above $23 a barrel, the analysts said, adding that the “underlying drivers of the dislocation look set to become entrenched.”
The July contract for Brent crude declined 17 cents, or 0.2%, to $113.85 a barrel on ICE Futures in London during electronic trading Friday.
Analysts at Capital Economics argue the spread is the product of logistical problems at Cushing, the appeal of Brent over U.S. crudes as a substitute for Libyan oil, and speculative demand following OPEC’s failure to raise quotas.
Cushing in Oklahoma is the storage and pricing facility for WTI, and refining and capacity problems have led to a build-up in stocks and have depressed prices, Capital Economics said.
“All of these elements should diminish over time, starting with the [OPEC quota issue] as Saudi Arabia raises output regardless. Middle East tensions will also fade eventually, and there are plans in place to ease the supply constraints at Cushing,” the analysts said.
Capital Economics forecast the Brent-WTI spread will be below $10 per barrel by the end of the year.
The dollar index DXY +0.35% , which compares the U.S. unit to a basket of six rival currencies, rose to 75.539 during Asian trading hours, from 75.476 late Thursday.
A stronger greenback tends to deter investors from buying dollar-priced commodities such as oil.
