Brent Oil Gains a Second Day as Pipeline Stays Shut, Chavez Dies

By Ben Sharples

Brent oil rose a second day, widening its premium to West Texas Intermediate, as a North Sea pipeline system stayed shut and Venezuela, OPEC’s fourth-biggest crude producer, reported the death of President Hugo Chavez.

Brent futures climbed as much as 0.6 percent in London after gaining 1.4 percent yesterday. The pipeline system has been shut since an oil leak was discovered March 2 on the Cormorant Alpha platform. Chavez died yesterday in Caracas, Vice President Nicolas Maduro said on state television. U.S. crude stockpiles rose 5.6 million barrels last week, data from the American Petroleum Institute showed.

“People are still betting on a rise in oil prices,” Akira Kamiyama, a derivatives Manager at Mitsui & Co. (8031)’s Singapore trading unit said by telephone. “The death of Chavez is more of a geopolitical risk factor in the crude market, which may lead to a supply disruption. The North Sea pipeline leak will affect production so it’s a bullish factor as well.”

Brent oil for April settlement rose as much as 62 cents to $112.23 a barrel on the London-based ICE Futures Europe exchange and was at $111.93 at 12:07 p.m. in Singapore. The volume of all futures traded was more than double the 100-day average. The European benchmark grade’s premium to WTI futures was at $20.86, widening for a fifth day.

WTI for April delivery was at $91.07 a barrel, up 25 cents, in electronic trading on the New York Mercantile Exchange. The volume of all futures traded was about 10 percent below the 100- day average. The contract increased 70 cents to $90.82 yesterday, the biggest advance since Feb. 19.

Brent Pipeline

Production from the 27 North Sea oil fields that make up the Brent system was shut because of the platform leak, an official from Abu Dhabi National Energy Co. (TAQA) PJSC, the operator known as Taqa, said March 4. There’s no estimate for when it will resume, said the official, who asked not to be identified because of company policy.

The pipeline normally carries 90,000 barrels of oil a day, equivalent to 10 percent of U.K. output, though 10,000 barrels a day was already offline following a similar incident at the same platform on Jan. 14.

In Caracas, Chavez died at 4:25 p.m. yesterday at a military hospital, according to Maduro. Venezuela’s crude basket has surged more than 11-fold to $103.89 a barrel currently from about $9 when Chavez took office in 1999. He used the revenues to pour money into social programs, helping to cut the poverty rate by half.

Venezuelan Output

“It’s too soon to say what Hugo Chavez’s death means for oil prices, but it is certainly true that oil prices are what made Hugo Chavez possible,” Daniel Yergin, the chairman of IHS Cambridge Energy Research Associates, said in an e-mail. Falling oil prices paved the way for Chavez to rise to power and increasing prices gave him the money needed to sustain state spending and consolidate power, Yergin said.

Venezuela produced 2.86 million barrels of oil a day last month, behind Saudi Arabia, Iraq andKuwait in the 12-member Organization of Petroleum Exporting Countries, according to a Bloomberg survey. It exported about 1 million barrels a day to the U.S. in December, figures from the U.S. Energy Information Administration show.

“The death of Hugo Chavez may have an impact on the market, although that isn’t apparent at the moment,” said Michael McCarthy, a chief market strategist at CMC Markets in Sydney. “The potential for disruption in Venezuelan politics could see disruptions to development and supply.”

Oil Supplies

U.S. crude supplies last week increased the most since May, the API data showed. Stockpiles at Cushing, Oklahoma, the delivery point for WTI, gained 259,000 barrels to 50.8 million, the highest level in a month. An EIA report today may show total U.S. crude inventories gained by 788,000 barrels, climbing for a seventh week, according to the median estimate of 12 analysts in a Bloomberg News survey.

Gasoline supplies dropped 914,000 barrels last week, the API data show. They are projected to fall 1 million barrels in the EIA report. Distillate inventories, a category that includes heating oil and diesel, slipped 1.7 million barrels, compared with a projected 1 million barrel decline in the survey.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA for its weekly survey. The Energy Department’s statistics unit is scheduled to release its report at 10:30 a.m. in Washington.

Oil in New York has technical support along its lower Bollinger Band, about $90.24 a barrel today, according to data compiled by Bloomberg. Futures yesterday traded below the indicator before rebounding to settle higher, signaling chart support, where buy orders may be clustered.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

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