Oil Market Update (August 21, 2012)

Brent crude oil rose to around the $114 per barrel level on Monday, driven by tight North Sea supplies ahead of the closure of a key UK oilfield for maintenance and forecasts of increased pre-winter demand

Britain’s largest oilfield, Buzzard, the single largest contributor to the Forties crude oil stream, will shut down next month until mid-October.

According to a Financial Post report, production from key North Sea oilfields is due to fall by approximately 17 percent next month, which will help drive crude prices. The production shortfall is expected to be temporary and traders anticipate that pressure will ease after the maintenance is completed.

Meanwhile, oil in New York traded near its highest closing level in three months. Crude advanced as European policy makers planned a week of meetings aimed at resolving the ongoing Eurozone situation.

Michael Poulsen, an analyst at Global Risk Management, told Bloomberg, “I remain optimistic that a solution to the Euro crisis will be found. There is simply too much at stake to let the Euro project fail. From a longer perspective, upside bias for oil is warranted due to market fundamentals.”

Poulsen predicts prices will trade within a $4 range this week before advancing.

According to the Joint Organization Data Initiative, Saudi Arabia pumped at its highest level in more than three decades in June, and monthly exports received the highest since November 2005.

Crude for September delivery was recorded at $96.15 — a gain of 14 cents — in electronic trading on the New York Mercantile Exchange. Front-month prices are 2.7 percent lower this year.

Brent oil for October settlement climbed 66 cents to $114.34 a barrel on the London-based ICE Futures Europe exchange, according to Bloomberg data. The European benchmark grade’s premium to West Texas Intermediate stands at $17.91.

Prices slipped last week after a source said the White House was “dusting off” plans to potentially tap the Strategic Petroleum Reserve in an attempt to prevent rising energy costs from undermining the success of sanctions against Iran.