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OUTPUT RISE IN Q2

Oil prices steady, more Saudi supply seen

London, February 20, 2013

Oil prices were little changed on Wednesday as the prospect of more Saudi supply offset optimism about the global economy that has helped bolster an improved demand outlook.

April Brent crude futures was 2 cents up at $117.54 a barrel by 1040 GMT after posting their first gain in four sessions on Tuesday. US crude added 21 cents to $96.87. The contract expires later on Wednesday.

Saudi Arabia, the world's top exporter of crude oil, expects to raise its output in the second quarter to satisfy higher demand from China and drive economic recovery elsewhere, oil industry sources said, but the exact rise in volume was unclear.

Saudi Arabia's move to cut output sharply by about 700,000 barrels per day (bpd) in the last two months of 2012 had helped tighten supply and supported oil prices.

However overall the market has stayed in a narrow range between around $115 and $119 since the start of the month, and analysts think there is scope for it to be there for some time.

"Crude oil prices have been pushed very high and it would take quite a lot to push them above $120," said Filip Petersson, Commodity strategist at SEB.

"As long as we don't see a bearish trigger, prices could stay at this level for a while longer."

However, others saw a potential correction, after a 5.7 per cent gain for brent so far this year.

"Brent may be setting up for a modest second-quarter correction, as many of the drivers supporting the North Sea market will begin to fade in the spring," Adam Longson, Morgan Stanley analyst said.

Crude supply is expected to improve in the second quarter due to refinery maintenance in Asia and Europe, and as the United States continues to displace imports with rising domestic production, he said.

US SUPPLY GLUT

Supply is also rising in the United States, where weekly oil inventories data is expected to show a build in crude stockpiles, which can be bearish for prices. Refined product inventories were expected to have declined.

A supply glut in the US Midwest will persist as oil shipments on the Seaway pipeline between the US Midwest and the Gulf Coast will run below daily capacity of 400,000 barrels.

The pipeline was expanded this year as operators had aimed to divert crude from bloated tanks in Cushing, Oklahoma, the delivery point for West Texas Intermediate (WTI). Despite the problems, US crude futures settled up 80 cents on Tuesday.

Strength in US economic data due later this week could whet investors' appetite for riskier assets such as equities and oil. Bullish sentiment in the US equities markets rubbed off on oil on Tuesday, leading both benchmarks to close up.

Investors are also watching the outcome of Iran's nuclear talks with major world powers next week although analysts do not expect any breakthrough until after Iran's elections in June.

"It's probably neutral to bullish for oil markets," Tony Nunan Tony Nunan, a risk manager at Mitsubishi Corporation said. "Oil can stay strong because of geopolitical risks that are inherent in the system, but I think it's kind of overdone again." - Reuters




Tags: Saudi Arabia | Oil | London | UK | Output |

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