Brent up, U.S. crude down, premium near 3-month high

NEWS YORK Thu Feb 2, 2012 5:57pm EST

An attendant prepares to refuel a car at a petrol station in Rome January 4, 2012.  REUTERS/Max Rossi

An attendant prepares to refuel a car at a petrol station in Rome January 4, 2012.

Credit: Reuters/Max Rossi

NEWS YORK (Reuters) - Brent prices rose for a third straight day on Thursday and U.S. crude dropped more than 1 percent in heavy trading that saw the price differential between the two contracts widen close to three-month highs.

Brent's premium to U.S. crude futures shot to above $16 a barrel, up intraday by more than $2 and marking the biggest three-day rise in the spread since August.

Limp demand and robust supplies in the United States had weighed on the U.S. oil complex, sending front-month crude to a six-week low. Caution ahead of Friday's U.S. non-farm payrolls and unemployment report for January also pressured U.S. crude.

International benchmark Brent found support from cold weather in Europe and geopolitical concerns including the West's contentious standoff with OPEC member Iran over Tehran's nuclear program.

Brent has also drawn support from low crude inventories in Europe and as more European crude headed toward Asia, with users there scrambling for alternative sources to avert the effects of tightening sanctions from the West against Iran.

U.S. crude stockpiles have risen sharply for two consecutive weeks, with the latest increase in the week to January 27 of more than 4 million barrels attributed to lower refinery activity and poor demand for gasoline and heating oil. <EIA/S>

In London, ICE Brent crude for March delivery settled at $112.07 a barrel, gaining 51 cents, climbing back in late trade towards its early high of $112.50.

"Demand in Asia is very strong right now -- refiners there can get more bang for their buck in buying Brent," said Phil Flynn, analyst at PFGBest Research in Chicago.

"It's cold in Europe and it's warm in the United States."

U.S. crude settled at $96.36, falling $1.25, moving back above its 200-day moving average of $96.22, after falling to the day's low of $95.44, the lowest intraday since December 20. Front-month crude extended losses to the fifth day in a row.

At the close, Brent's premium against U.S. crude was at $15.71, rising from $13.95 on Wednesday. The spread widened to as much as $16.11, the highest intraday gap since November 11, according to Reuters data.

"If not for the Iranian issue, WTI (U.S. crude) would be $10 a barrel below where it is now," said Richard Ilczyszyn, chief market strategist and founder of iitrader.com in Chicago.

At the same time, technical weakness also bedeviled front-month U.S. crude as front-month March crude broke below a key guidepost and that spurred selling, analysts said.

"U.S. March crude broke below its 200-day moving average at $96.22, triggering more selling, ahead of Friday's jobs report," said Chris Dillman, analyst at Tradition Energy in Stamford, Connecticut.

Brent crude's total trading volume surged 30 percent above its 30-day average, according to Reuters data as of 3:35 p.m. EST (3035 GMT). Total U.S. crude volume climbed 26 percent above its 30-day average.

U.S. JOBS OUTLOOK

Oil investors have turned cautious ahead of Friday's U.S. government report on nonfarm payrolls and unemployment.

Economists forecast in a Reuters poll that 150,000 jobs were added last month, less than the number in December, and the unemployment rate was projected holding steady at a near three-year low of 8.5 percent.

In the face of the jobs forecast, oil investors shrugged off U.S. economic reports for the day which showed that jobless benefit claims fell last week and U.S. non-farm productivity rose in the fourth quarter.

Investors also weighed comments by U.S. Federal Reserve Chairman Ben Bernanke that he was seeing signs that some of the uncertainty dampening U.S. business investment, including European banking troubles, might be waning.

However, Bernanke, in testimony before a budget panel of the U.S. House of Representatives also said that, "risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home."

IRAN TENSION

Tension between Iran and the West continue to be a critical factor lending support to oil prices.

The United States has already imposed sanctions against Tehran which the West sees as having nuclear weapons ambitions, which Iran denies, and the European Union is banning Iranian crude by July 1.

Tighter measures are being planned by the U.S. Senate and U.S. lawmakers are also considering a bid to force President Barack Obama's administration to blacklist Iran President Mahmoud Ahmadinejad and the country's supreme leader, Ayatollah Ali Khameini, in the bid to curb Tehran's nuclear capabilities.

(Additional reporting by Robert Gibbons and Matthew Robinson in New York, Simon Falush and Peg Mackey in London; Editing by Marguerita Choy, Dale Hudson and David Gregorio)

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