new York 07 31, 2012, 02:50 IST
Brent oil ended down for the first time in five sessions on Monday as worries that expected stimulus from the United States and Europe may fail to lift their economies overshadowed signs of lower OPEC production.
Supply from the 12-member Organization of the Petroleum Exporting Countries (OPEC) fell by 450,000 barrels per day (bpd) in July to 31.18 million bpd, a Reuters survey showed, as Western sanctions further cut supply from Iran and due to reduced shipments from Angola, Saudi Arabia and Libya.
"The fundamentals are looking more constructive for the second half of this year, with the supply-and-demand balance now close to a deficit compared to the large surplus in the first half," said Katherine Spector, a commodity strategist at the Canadian Imperial Bank of Commerce in New York.
"The bearish factor is liquidity. Trading has been relatively slow and hedge funds and other investors don't appear to want to commit in the current economic environment."
Slowing growth in the United States, the world's top oil consumer, has triggered expectations of stimulus measures from the Federal Reserve, which meets on Tuesday and Wednesday.
European Central Bank President Mario Draghi also promised last week to do what it takes to protect the euro, raising expectations of new policy measures to solve the debt crisis when the ECB meets on Thursday.
But analysts say markets may be hoping for too much.
"Speculation over central bank action looks like it has gone too far," said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt.
"The euro has already begun to retreat and oil has also started to weaken. The move upwards seems exaggerated."
In London, Brent crude for September delivery settled at $106.20 a barrel, edging down 27 cents.
U.S. September crude settled at $89.78 a barrel, falling 35 cents, also ending a four-day winning streak.
Brent has risen more than 8 percent in July while U.S. crude has gained around 6 percent, supported largely by hopes of more economic stimulus.
Brent's premium against U.S. crude rose slightly to $16.42, after closing at $16.34 on Friday.
Trading volumes were light, with Brent dealings down 55 percent from the 30-day average and U.S. crude down 34 percent from its 30-day average, according to Reuters data.
U.S. second quarter GDP: http://link.reuters.com/her69s
Asset returns in 2012: http://link.reuters.com/nyw85s
Commodities so far in 2012: http://link.reuters.com/faz36s
Thursday's ECB meeting is in sharp focus, given the threat the long-running euro zone crisis poses to the global economy.
U.S. Treasury Secretary Timothy Geithner and Germany's Finance Minister Wolfgang Schaeuble issued a joint statement after their meeting on Monday that emphasized "the need for policymakers to adopt and implement all reform steps required to deal with the financial crisis and crisis of confidence."
Optimism about ECB action caused European shares to rally though U.S. equities edged lower following their best two-day run this year as investors awaited the central bank meetings.
The euro fell against the dollar for the first time in four days as investors turned cautious.
OPEC OUTPUT FALLS, U.S. DATA AWAITED
OPEC's production has declined since it pumped 31.75 million bpd in April, the highest since September 2008, based on Reuters surveys. The biggest drop in supplies in July came from Iran, whose crude is subject to a European Union embargo that started on July 1 barring EU insurance firms from covering Iran's exports.
Iran's output fell by 150,000 bpd to 2.8 million bpd, the lowest level in more than two decades, according to the U.S. Energy Information Administration.
Saudi Arabia trimmed supply slightly in July because of lower demand from some customers, such as in the United States, sources in the survey said. It still kept output at 10 million bpd, near the highest level in decades.
Oil prices have found support from escalating tensions in the Middle East, with rising violence in Syria threatening to destabilise the region further.
Iran is still in a face-off with the West over its nuclear programme, fuelling uncertainty about supply in the oil markets. The West insists Tehran is trying to develop a nuclear bomb, but the Islamic republic has vehemently denied this assertion.
On Tuesday, the industry group American Petroleum Institute will release its report on how U.S. petroleum inventories shifted for the week to July 27. That will be followed by U.S. government data for the same period on Wednesday.
A Reuters poll of analysts ahead of the reports forecast that U.S. crude stockpiles fell by 1.6 million barrels last week due to lower imports.
