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UPDATE 8-U.S. crude falls, market expects end to Fed stimulus

Jeanine Prezioso
Monday, 18 Nov 2013 | 3:25 PM ET

* Major powers, Iran to resume nuclear talks this week

* Saudi Q3 crude exports surge to highest in nearly eight years

* Analyst expect a small build in crude inventories- poll

* Coming up: API oil data on Tues at 4:30 p.m. EST

NEW YORK, Nov 18 (Reuters) - U.S. oil futures fell on Monday, weighed down by expectations the Federal Reserve could taper its bond buying program.

Crude prices fell quickly in early afternoon activity after William Dudley, the president of the Federal Reserve Bank of New York, said he was "getting more hopeful" on prospects for U.S. economic recovery.

In addition, Charles Plosser, president of the Philadelphia Fed, said improved economic and labor market conditions suggest the Fed should set a fixed dollar amount on its current bond-buying program and end the program when that amount is reached.

Oil markets have been watching for signs that the Fed would start tapering, or reducing the stimulus that has supported commodities prices in recent years.

Fed Chairman-nominee Janet Yellen signaled last week that the central bank would need stronger evidence of economic growth before tapering. While Dudley is a permanent voter on the Fed's policy-setting committee, "people are really kind of watching what Yellen plans to do," said Gene McGillian, analyst with Tradition Energy in Stamford, Connecticut.

January Brent crude ended the day 3 cents lower at $108.47 a barrel. U.S. crude for December delivery fell 81 cents to settle at $93.03 a barrel, after hitting a session low of 92.72. The December contract expires at the end of trading on Wednesday.

U.S. oil's discount to Brent at one point widened by 90 cents to $14.91 a barrel and settled at $14.79. That spread has been supported by refinery maintenance in the Gulf Coast that has cut demand and built up inventories at the Cushing, Oklahoma delivery point for the U.S. oil contract.

"Oil is bottled up in the Midwest and can't go anywhere," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis. "Even with the drop we've seen in WTI, Brent has fallen much less."

In the longer term, he said he still expects that as refiners come back online "that should help narrow that gap and help WTI gain on Brent."

Tensions in Libya continue to boost the price of international benchmark Brent crude. Libyan crude oil exports have fallen by more than 1 million bpd over the last six months as fighting between rival militias and industrial unrest has spread across the country.

Saudi crude production rose close to 10 million barrels per day, the highest average level sustained over a four-month period since government records began in 2002. In the U.S., production in North Dakota is nearing 1 million bpd.

U.S. oil inventories were forecast to have increased by 100,000 barrels last week while gasoline supply increased by 200,000 barrels, according to a Reuters poll.

Industry group the American Petroleum Institute will release its weekly data on Tuesday at 4:30 p.m. EST (2130 GMT). The U.S. Energy Information Administration will report its data on Wednesday at 10:30 a.m. (1530 GMT).

Investors also awaited news from a meeting beginning on Wednesday between Iran and world powers over ending its nuclear program that may provide insight on whether sanctions against Iran would be lifted and, if so, when.

Sanctions against Iran have kept around 1 million barrels per day (bpd) of oil from the global market and any deal could allow some of that oil to be sold, depressing a market that is already well supplied.

U.S. Secretary of State John Kerry said on Monday he had no specific expectations about world powers reaching a deal with Iran during the talks.