NEW YORK (Dow Jones)--U.S. benchmark crude oil futures prices fell 2% Monday to settle near $97 a barrel on concerns over high inventories and slim demand.
But European benchmark Brent crude held firm amid tightening supplies of similar grades of oil and posted a record high premium of near $21.80 a barrel to the U.S. price.
Traders said the markets for the two crudes are facing somewhat differing fundamentals, with supplies of crudes similar to Brent being crimped by the Libyan civil war and civil unrest in Nigeria. Meantime, U.S. inventories of crude oil and products are above five-year averages when measured against demand, which is lagging year-earlier levels.
Light, sweet crude oil futures for July delivery on the New York Mercantile Exchange settled down $1.99 at $97.30 a barrel, the lowest level since May 17. Prices came down sharply after failing to hold a high above $102 a barrel Friday, when they posted their biggest drop in a month.
ICE July Brent crude settled 32 cents higher at $119.10 a barrel, pushing the spread between it and the U.S. contract to well beyond the previous record of $19.49-a-barrel premium set at Friday's settlement.
Tim Evans, analyst at Citi Futures Perspective, said he's "astounded" that the spread between the benchmarks has widened so much. "It's trading as if it is two completely different commodities."
He said commodity-investment funds have pushed up Brent because it is the "hot market," with fundamentals calling for Brent to trade near $90 a barrel compared with $85 for the U.S. benchmark.
Many trading houses have said Brent could climb to $120 to $130 a barrel as supplies of internationally traded light, sweet crude oil can't meet expected rising demand this year. The Libyan civil war has cut about one million barrels a day of this grade of oil from the market, while production from the North Sea is still hobbled by recent problems at the Buzzard Field, which is limiting available Brent crude this month.
Shell on Monday said it had to declare force majeure of shipments of Nigerian Bonny Light crude in June and July due to sabotage by rebels, which further tightens Brent-like barrels.
Saudi Arabia, the world's biggest oil exporter, said it will boost output, despite the failure of the Organization of Petroleum Exporting Countries to approve such a move. But new oil from the Saudis doesn't match the quality of the lost Libyan and other supplies.
Forecasts call for global oil demand to rise in the second half of the year, but in the U.S., demand has been little-changed from a year ago, while inventories for crude oil and main products like gasoline remain high. Crude-oil stocks across the U.S. are at 21-year highs for early June, even as inventories at Cushing, Okla.--the delivery point for the Nymex contract--have fallen to their lowest level since February.
Analysts expect government and industry data due later this week to show U.S. crude oil and petroleum products inventories rose modestly in the week ended June 10.
Gene McGillian, a broker and analyst at Tradition Energy in Stamford, Conn., said despite the broad moves, U.S. crude remains within its $95-to-$105-a-barrel range from early May, and he doesn't expect a quick move outside these boundaries.
"There is a lot of uneasiness about the U.S. economy," he said, adding that a Monday downgrade by Standard and Poor's of Greece's sovereign-debt ratings raises strong questions about the global economy in the near-term and helped push U.S. crude to a session low of $96.13 a barrel.
July-delivery reformulated gasoline blendstock futures settled down 2.09 cents at $2.9968 a gallon, while July heating oil gained 0.7 cent to $3.1058 a gallon.