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Oil Declines a Third Day; Morgan Stanley Sees Supply Recovery

Jan. 7 (Bloomberg) -- Oil declined for a third day in London amid speculation that talks between Sudan and South Sudan may lead to the resumption of crude exports.

Brent futures fell as much as 0.5 percent, while the U.S. benchmark West Texas Intermediate lost as much as 0.7 percent. Sudanese President Umar al-Bashir and South Sudan’s Salva Kiir will meet in the Ethiopian capital Addis Ababa on Jan. 13, having agreed last week to set up a demilitarized zone along their border “without further delay.” Morgan Stanley said that Brent will come under pressure as demand eases after winter in the Northern Hemisphere and supplies in Angola, Nigeria and South Sudan are restored.

“The improved supply-demand balance should put marginal downward pressure on Brent prices over the next few months,” Hussein Allidina, head of commodities research at Morgan Stanley in New York, said in a report. “We assume production will return from South Sudan through 2013.”

Brent for February settlement slipped 50 cents to $110.81 a barrel on the London-based ICE Futures Europe exchange at 12:43 p.m. local time. The European benchmark contract was at a premium of $18.22 to WTI, in line with the closing level on Jan. 4, the narrowest in more than three months.

Crude for February delivery declined as much as 64 cents to $92.45 a barrel in electronic trading on the New York Mercantile Exchange. The contract advanced to $93.09 on Jan. 4, the highest settlement since Jan. 2.

South Sudan

South Sudan, which gained independence from Sudan in July 2011, halted its 350,000 barrel-a-day crude production last January after accusing authorities in Khartoum, the Sudanese capital, of stealing $815 million of its oil. Sudan said it took the crude to recoup unpaid transportation and processing fees. That dispute and others, including differences over border security, brought the neighbors to the brink of war in April.

Prices in New York capped a fourth weekly gain on Jan. 4 after a Labor Department report showed employers in the U.S. added 155,000 workers in December, exceeding the 152,000 median forecast in a Bloomberg survey.

Last week’s rally took WTI futures to technical resistance along the 50-week moving average, according to data compiled by Bloomberg. This indicator is around $93.70 a barrel today. Sell orders tend to be clustered near chart-resistance levels.

Hedge funds raised bullish bets on WTI to the highest level in 11 weeks before lawmakers passed a bill to undo automatic tax increases that threatened the U.S. economy. The House of Representatives approved a Senate bill at 11 p.m. on Jan. 1, protecting 99 percent of households from higher income taxes.

Money Managers

Money managers boosted net-long positions by 11 percent in the seven days ended Jan. 1 to the most since Oct. 16, the Commodity Futures Trading Commission’s Commitments of Traders report showed on Jan. 4.

In London, hedge funds and other money managers raised bullish bets on Brent crude to their highest level in nine months, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 139,111 lots in the week ended Dec. 31, the London-based exchange said today in its weekly Commitment of Traders report.

WTI may rise this week on speculation that stronger economic growth will increase fuel demand, a Bloomberg News survey showed Jan. 4. Fourteen of 24 analysts and traders, or 58 percent, surveyed last week forecast New York crude will gain through Jan. 11. Five respondents, or 21 percent, predicted a drop and five said there would be little change.

Exports of North Sea Brent crude in February are planned at six cargoes of 600,000 barrels each, one less than this month, a loading program obtained by Bloomberg News showed.

Brent is one of four North Sea oil grades that make up the Dated Brent benchmark, which is used to price crude from the Middle East, Africa and Russia. Of the other three blends, Oseberg’s February exports were unchanged, a loading program showed last week while schedules for Forties and Ekofisk will probably be released to traders later today.

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