Brent holds under $104 on rising supply and weaker Chinese demand

Published: 11 June 2013
PERTH - Brent futures held under $104 a barrel on Tuesday after the world's largest consumer, the US, nearly doubled an estimate of its shale oil reserves, while prospects of a slowdown in Chinese demand sapped prices.

Estimated global reserves of oil in shale rock deposits would boost total world crude resources by 11%, the US government said in a report on Monday.

US oil production has soared as new drilling techniques have unlocked shale deposits countrywide. The Energy Information Administration now estimates such shale oil reserves at 58-billion barrels, up from 32-billion in 2011.

"The gains seem to be hitting a ceiling simply because there is a broad market recognition that supply is racing ahead of demand," IHS MD of downstream energy consulting Victor Shum said in Singapore.

Brent crude was down 28c at $103.67 a barrel by 4.59am GMT, while US oil fell 10c to $95.67.

Increasing oil supplies and waning demand in China, the world's number two oil consumer, are likely to hold down prices.

Data from China showed a slowdown in the economy of the world's biggest energy consumer, with May exports weak and domestic activity struggling to pick up.

Implied oil demand rose in May at its lowest annual rate since September 2012, Reuters calculations showed.

A Reuters poll of analysts expects US commercial crude oil stockpiles to have risen last week on higher imports, in a counterseasonal increase that may squeeze prices.

The North Sea Buzzard oil field, which produces 200,000 barrels per day, returned to full production capacity on Monday, weighing on Brent prices.

Oil cartel Organisation of Petroleum Exporting Countries (Opec) and the West's energy adviser, the International Energy Agency (IEA), will release monthly reports of global oil demand on Tuesday.

Opec is expected to confirm that production rose slightly in May, Citi analyst Tim Evans said.

Also helping to keep a lid on prices is continued oil supply from South Sudan, despite threats from Sudan that it would stop cross-border flows in a row over alleged support for rebels.

In the latest conflict, Sudan had said it would close the two export pipelines with its African neighbour within two months unless Juba halted support for insurgents operating across the shared border.

Turning off the tap from South Sudan would hit supplies to Asian buyers, such as China National Petroleum, India's ONGC Videsh, and Malaysia's Petronas, which run the oilfields in both countries.

"The market continues to regard tensions between Sudan and South Sudan as more noise than a credible threat that oil exports are about to be interrupted," Mr Evans said.

- Reuters


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