LONDON: Oil prices rose towards $108 a barrel but were headed for a second week of losses yesterday as the lack of a solution to the financial crisis in Cyprus loomed over investors.
Russia turned down appeals for aid, leaving the island to strike a bailout deal with the European Union by next week or face a collapse, with potential knock-on effects for others in the euro zone and ultimately for oil demand.
Providing an early glimmer of encouragement, however, the Cyprus Presidency said it had agreed with Greece on a takeover of the Greek units of Cypriot banks and the deputy leader of the ruling party said a deal could be reached within hours.
Oil prices pared initial losses to extend gains after the party leader’s comments, while the euro hit a one-week high against the US dollar.
Abhishek Deshpande, an oil markets analyst for Natixis in London, said both Brent and US crude were reacting to headlines on a potential Cyprus bailout deal.
“It is not Cyprus, it is the sentiments that Cyprus is sending, the fact that situation in Europe is far from over,” Deshpande said.
Brent crude for May delivery was up 32 cents at $107.79 a barrel by 1432 GMT, but still looked set to post a fall of close to 2 percent this week. US crude for May was at $93.14, up 69 cents. Some analysts said the reaction to the crisis in Cyprus was overblown and other fundamental factors had contributed to recent falls in the oil market.
“Rising North Sea supply, the resumption of exports in South Sudan and the exit of financial investors,” said Carsten Fritsch, an analyst at Commerzbank, listing reasons why the outlook for oil appeared weaker.
Industry sources said the supply of crude that sets the global Brent benchmark was expected to grow more swiftly than expected with shipments being brought forward due to strong output rates in the North Sea. And state media said Sudan has ordered oil firms to prepare to start receiving South Sudanese crude exports again after the two countries signed a deal this month. Reuters
