UPDATE 1-Oil slips as Russia agrees Ukraine natural gas sales
Wednesday, January 4, 2006 7:59:05 AM
reuters.com
(Recasts with resolution of gas row, updates throughout)
By Luke Pachymuthu
SINGAPORE, Jan 4 (Reuters) - Oil dipped half a dollar on Wednesday after Russia and Ukraine settled a natural gas supply dispute, but prices retained most of the past week's sharp gains amid a fresh infusion of investor funds.
Deepening light earlier losses, U.S. February light crude <CLc1> slid 48 cents to $62.66 a barrel by 0734 GMT after Gazprom said it had reached a gas supply deal with Ukraine, seeming to end a row that briefly disrupted exports to Europe.
European gas oil futures <LGOc1>, which shot 5 percent higher on Tuesday amid fears that the temporary cut in Russian gas supplies could boost demand for other heating fuels as the winter turns frigid, slid 1.5 percent to $534.50 a tonne.
London Brent crude <LCOc1> traded at $60.83, down 52 cents.
Russia cut natural gas exports through Ukraine on Jan. 1 after its ex-Soviet neighbour refused to pay a four-fold price increase, but it restored flows a day later when European nations complained that their supplies had also been curtailed.
On Wednesday Gazprom chief executive Alexei Miller said the firm had agreed to sell natural gas to Ukraine for five years from Jan. 1, a move that may set at ease European consumers who depend on Russia for a quarter of their gas.
"This amicable resolution will likely reduce the risk premium for supply disruptions in the global energy markets," Darius Kowalczyk, Hong Kong-based senior investment strategist at CFC Seymour Securities.
INVESTORS PILE IN
The dip on Wednesday barely dented a rally that has added nearly $5 to prices over the past week, as fresh investment and speculative funds flow into the market, signalling that commodities are set to remain a hot ticket item for money managers in 2006.
"Investors have an innate tendency to allocate money to sectors that make money, and the strong commodity bull market still has some way to run, " said Michael Coleman, managing director of Singapore's Aisling Analytics, a hedge fund manager.
Oil averaged $56.70 a barrel last year, about 37 percent more than in 2004, and analysts say the lack of spare capacity and the existence of geo-political uncertainties -- most recently the Russia-Ukraine gas row -- could keep the rally going.
"Commodity-related funds remain in demand because the fundamentals remain the same -- we have strong economic growth in Japan, the United States and China that is going to drive up demand, while spare refining capacity remains limited," said Tony Nunan, a manager at Mitsubishi Corp's risk management business.
The economy in the United States -- the world's biggest fuel consumer -- is expected to expand by 3.4 percent next year, a little less than this year's growth, according to a Reuters poll conducted in December.
China, the No. 2 oil user, is expected to grow 8 to 9 percent.
In the short-term traders will be looking toward U.S. oil inventory data for indications of whether refiners are able to keep up fuel supplies during the winter.
The data will be released on Thursday, a day later than usual due to the New Year's holiday.
Warmer than expected weather is likely to have allowed stocks of distillates -- which includes heating oil -- to build by 900,000 barrels in the week to Dec. 30, a Reuters poll found. [EIA/S]
Crude stocks were seen falling by 1.5 million barrels due to lower imports and year-end tax liquidation, while gasoline inventories were expected to rise by 300,000 barrels. |
