Brent falls, premium to US oil narrows

Jeanine Prezioso
A view of the Mellitah Oil and Gas blocked by members of the Berber minority demanding more rights complex, 100 km (60 miles) west of Tripoli November 7, 2013. REUTERS/Ismail Zitouny

By Jeanine Prezioso

NEW YORK (Reuters) - Brent oil dropped by more than $1 on Friday while U.S. crude rose in thin, volatile trade ahead of the weekend as traders continued to weigh supply outages in Libya against U.S. inventory levels.

Brent crude found some early support from the ongoing supply disruptions in Libya before falling into negative territory in a bout of late selling ahead of the settlement.

U.S. crude rose early before giving up some gains as Brent collapsed, with traders weighing low distillate stockpiles ahead of winter against high crude inventories.

Traders said additional support for U.S. crude, frequently called West Texas Intermediate, came from short covering and a sell off in the contract's discount to Brent. Brent's premium to WTI blew out to more than $19 a barrel on Wednesday, and settled down at $16.97 a barrel on Friday.

U.S. crude did not settle on Thursday due to the Thanksgiving holiday in the United States, and players said many traders were out on Friday, leaving the market open to swings.

"Ultimately, (U.S. crude oil's earlier) run up was on relatively light volume, there was no fundamental shift," said Rich Ilczyszyn, chief market strategist and founder of LLC in Chicago.

Brent settled $1.17 lower at $109.69 a barrel, after trading as high as $111.50. The contract settled with a less than one percent gain on the month.

U.S. oil rose 42 cents to settle at $92.72 a barrel, off from the earlier high of $93.90. Oil trading closed at 1:30 p.m. EST on Friday.

U.S. ultra low sulfur diesel futures (ULSD), more commonly known as heating oil, touched a near two-month high at $3.0710 but settled virtually flat at $3.0478 per gallon.

The market focused on dwindling distillates rather than growing U.S. oil supplies, and traders bet that oil prices would rise as refiners pump out heating fuels to supply Europe and the United States for winter heating.

U.S. inventories of distillates dropped to their lowest level for November since the government began tracking stocks in 1982, as refiners send record volumes of the fuel abroad, leaving a potentially tight supply scenario ahead of the heart of winter.

Traders were also eyeing ongoing disruptions and violence in OPEC member Libya. More than 40 people were killed in an explosion at an army depot in southern Libya after locals tried to steal ammunition, according to officials, the latest in a series of clashes highlighting the government's inability to restore order.

Libya's oil exports are down to a fraction of capacity due to seizures of oilfields and ports by militias, tribesmen and civil servants demanding more political rights or higher pay.

Expectations that more Iranian crude will come back to the market capped prices. Iran and six world powers clinched a deal on Sunday to curb its nuclear program in exchange for initial sanctions relief.