UPDATE 2-Brent crude extends rally as IEA warns of Middle East risks

  • Reuters
  • Commodities News
UPDATE 2-Brent crude extends rally as IEA warns of Middle East risks
Credit: © Reuters.

* IEA says Islamic State group poses major challenge for oil

* But high product inventories to put downward pressure on crude

* Record U.S. stocks to hit market as spring demand falls

* Brent-WTI spread widens towards $10/ a barrel (Adds IEA comment, updates prices)

By Henning Gloystein

SINGAPORE, Feb 17 (Reuters) - Brent crude prices extended their rally beyond $62 a barrel on Tuesday as the IEA warned of supply risks in the Middle East, although some analysts said that prices had risen too far from six-year lows hit in January.

The International Energy Agency's top economist, Fatih Birol, said on Tuesday that the rise of the Islamic State in Iraq and Syria presented a major challenge for the investment necessary to prevent an oil shortage in the next decade

"The appetite for investments in the Middle East is close to zero, mainly as a result of the unpredictability of the region," he said. ID:nL4N0VQ325

Benchmark Brent crude futures LCOc1 were up 69 cents at $62.09 a barrel by 0647 GMT, while U.S. WTI crude was 48 cents higher at $53.26 a barrel.

But analysts said the recent price rises may be overblown.

"The market is getting increasingly dubious as to this rally, with the CFTC showing that non-commercial net long positions are starting to fall," ANZ bank said in note.

Downward pressure may come from the refined products market in the next quarter.

"Consensus expects large inventory builds and pricing pressure for oil markets in 2015," Morgan Stanley said on Monday.

Demand for refined products has been strong in Asia, which is structurally short, and producers have been taking advantage of low crude prices to cover themselves with fuel and build up product inventories.

With Brent prices outperforming U.S. contracts the spread between the two benchmarks has risen to almost $9 a barrel, the highest level since August last year, and the trend will continue, analysts said.

"Considerable pressure is likely to build on WTI as inventories approach the EIA's 71 million barrel working storage capacity figure and we would therefore expect a wider WTI/Brent spread (low double-digit territory)," said JBC Energy.

In commodities investment, Australia's Macquarie Group Ltd MQG.AX said it was considering acquisitions in futures, physical oil and refined products businesses.

Macquarie's fixed income, currencies and commodities business now generates about 60 percent of its operating income from commodity markets. ID:nL4N0VR08J

The announcement comes at a time when many other banks have scaled back or sold their energy and commodities businesses. ID:nL6N0SU4N4

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GRAPHIC on Brent, WTI spread http://link.reuters.com/seb24w

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Michael Perry and Joseph Radford)

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