November 17, 2011 / 3:00 AM / 6 years ago

Brent extends losses on Eurozone woes

LONDON (Reuters) - Oil prices diverged further on Thursday as a clash in Europe over the role of the European Central Bank weighed on Brent, while U.S. crude was steady after rising 3 percent the previous session.

The spread between U.S. crude oil and Brent CL-LCO1=R narrowed to less than $8 a barrel, touching a high of $7.88 a barrel during the early hours of trade.

The differential has plummeted from a record $28 a barrel in October, after rarely moving above a few dollars in previous years, as U.S. prices have soared on a run of positive economic data and plans to reverse a pipeline to ease a U.S. oil glut.

More clouds gathered over the outlook for Europe as France and Germany clashed over whether the troubled region's bailout fund should be able to borrow from the ECB.

"The concern is about austerity measures throughout Europe, with the follow-through for Brent being a drop in demand," said David Morrison, market strategist at GFT Global.

"Instead the prevailing view is that the U.S. will escape the difficulties in Europe and the rest of the world, which is ludicrous," he added.

Brent crude was down $1.23 at $110.65 a barrel at 1000 GMT, while U.S. crude was 8 cents lower at $102.51 a barrel, holding gains after surging more than 3 percent the previous session.

ECONOMY

A diverging economic outlook for Europe versus the U.S. is helping to trim Brent's premium to WTI, following the previous session's news of a critical pipeline reversal in the Midwest, which wiped several dollars from the spread between the contracts.

Worries about the euro zone escalated on Thursday as French and Spanish bond yields rose to euro-era highs against German equivalents, while Italy's borrowing costs remained above levels seen to be sustainable.

But across the Atlantic, hopes persist for further signs of growth ahead of monthly factory activity data due to be published at 1500 GMT.

The forward looking new orders index jumped to a six-month high in October, and is expected to continue to point to an economic expansion in the U.S. for November.

U.S. jobless data due at 1330 GMT will also provide clues as to the outlook for the world's no. 1 oil consumer.

On Wednesday, data showed industrial output in the world's biggest economy had rebounded strongly, while October consumer prices fell for the first time in four months, adding to the recent series of positive numbers.

The strength of the U.S. benchmark may pare the price difference with the European benchmark Brent to about $5 in 2012, Barclay's Capital analysts said in a note.

"In our view, WTI should not have traded at a severe discount to Brent or any other benchmark for most parts of this year in any case," Barclays Capital analysts led by Paul Horsnell and Amrita Sen said in a report.

A slide in crude oil inventories in the United States also supported prices, with stockpiles falling 1.1 million barrels as forecast, reflecting increased refinery utilization rates.

Distillate supplies, which include heating oil and diesel fuel, dropped for the seventh consecutive week.

Additional reporting by Manash Goswami; Editing by James Jukwey

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