Oil rises above $110 on report of U.S.-Saudi rift

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Brent crude oil rose above $110 per barrel on Tuesday, pulling its premium above U.S. light crude oil to its widest in six months, after reports of a deterioration in relations between the United States and key OPEC oil producer Saudi Arabia.

A source close to Saudi policy said Riyadh would make a "major shift" in dealings with Washington in protest at its perceived inaction over the Syria war and its overtures to Iran.

The source cited Saudi Arabia's intelligence chief, Prince Bandar bin Sultan, as telling European diplomats Washington had failed to act effectively on the Syria crisis and the Israeli-Palestinian conflict.

"The shift away from the U.S. is a major one," the source said. "Saudi doesn't want to find itself any longer in a situation where it is dependent. Prince Bandar told diplomats that he plans to limit interaction with the U.S."

Saudi Arabia is the most important oil producer in the Middle East, pumping over 10 million barrels per day (bpd), and plays a key role in balancing oil markets to keep prices stable.

Analysts say any impact on Saudi oil sales policy could have a dramatic impact on prices.

Brent for December rose $1.30 per barrel to a high of $110.94 before slipping back to around $110.25 by 1415 GMT.

U.S. crude oil futures meanwhile fell after news of higher U.S. crude oil inventories after delayed government oil data.

U.S. crude futures for November, which were due to expire at the end of trade on Tuesday, fell below $99, their lowest since early July, before recovering to trade unchanged at around $99.00 per barrel.

Crude oil inventories in the world's top oil consumer rose in the week to Oct. 11 by 4 million barrels to 374.5 million, the U.S. Energy Information Administration (EIA) said, well above an increase of 2.2 million forecast in a poll of analysts.

Inventories at Cushing, Oklahoma, the delivery hub for the U.S. oil benchmark, rose by 366,000 barrels to 32.99 million as pipeline bottlenecks eased, after shedding 17 million barrels since June 28.

Seasonal refinery maintenance and shifting pipeline flows around Cushing helped reverse a long decline in stockpiles.

Traders are now betting on a near-term surplus of inventories in the United States, at least until refineries begin to increase processing again.

A Reuters poll of analysts said U.S. commercial crude oil inventories were forecast to have increased further last week.

The EIA will return to its normal schedule this week, reporting on Wednesday at 10:30 a.m. (1430 GMT). The American Petroleum Institute (API) will release its data on Tuesday at 4:30 p.m. EDT (2030 GMT).

"Refining maintenance has eaten into demand for U.S. crude, helping build stocks," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt.

Brent was also supported by a belief the Fed might delay tightening monetary policy until next year, which would remove some of the worries about demand in the U.S. economy and beyond.



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