WTI hovers above $101 on Egypt unrest and drop in inventories

West Texas Intermediate traded above $101 on Thursday, holding in tight range as there will be no floor trading in New York due to the Independence Day holiday. Oil prices surged recently as political tension in Egypt threatened to close the Suez Canal and EIAs latest oil reserves report showed an unexpectedly large drop in crude oil inventories.

Light, sweet crude traded at $101.20 per barrel at 7:00 GMT, 1 cent above open price. WTI ranged between days high and low of $101.48 and $101.00 per barrel respectively. WTI settled around 0.7% higher yesterday following wide fluctuations, extending this weeks advance to 4.8%. The American benchmark ended 2.73% higher last week after falling 4.04% the preceding one.

Meanwhile, Brent oil for August delivery traded at $105.42 a barrel at 7:00 GMT, marking a 0.32% daily loss. Prices ranged between days high and low of $105.99 and $105.31 respectively. The European benchmark settled more than 1.5% higher yesterday, extending this weeks advance to 3.3% so far. Last week Brent settled 1.07% higher.

Oil drew support by political tension in Egypt. The country controls the Suez Canal and the Suez-Mediterranean Pipeline, through which 2.24 million barrels of oil per day flow from the Red Sea to Europe and North America. Yesterday, the Egyptian military forces removed President Mohamed Morsi from power, seeking stability, and suspended the countrys constitution, boosting speculation that the political unrest may interrupt flows through the canal.

Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, said for Bloomberg: “Oil is being affected by concerns about Egypt. We saw significant draws in the EIA report. This is all part of the summer drive-time and is telling us the economy is good.”

Meanwhile, reduced output from some producers also gave oil a boost. Brazils oil and natural gas output fell in May for a fourteenth straight month due to platform repairs at Petrobras. Iraqs oil exports fell to 2.328 million, down from 2.484 due to pipeline leakages. A small explosion occurred at the Venezuelas Amuay refinery on Wednesday, but the fire was brought under control.

Inventories decline

According to the Energy Information Administrations weekly oil reserves report on Wednesday, crude oil inventories fell much more than anticipated. The EIA reported crude reserves dropped by 10.3 million barrels to 383.8 million as of the week ending June 28. This was above the upper limit of the average range for this time of the year. Refineries operated at 92.2% of their capacity last week, 2% higher than the previous period. Gasoline production increased, while distillate fuel output decreased.

Gasoline stockpiles fell by 1.7 million barrels, refuting forecasts. Distillate fuel inventories also outperformed projections, decreasing by 2.4 million barrels, whereas expectations were for a gain.

According to a Bloomberg survey, EIA’s report should have shown a 2.25 million barrels drop in crude oil reserves. Gasoline stockpiles were expected to have risen by 700 000 barrels and distillate fuel inventories were supposed to have gained 1 million barrels.

According to API’s report on Tuesday, Crude Oil Inventories dropped by 9.4 million barrels as of the week ending June 28. Gasoline stockpiles fell by 183 000 and distillate-fuel inventories dropped by 2.3 million. The industry-funded American Petroleum Institute’s report however is considered as less reliable since it is based on voluntary information from operators of pipelines, refineries and bulk terminals.

Weakening of the dollar which followed yesterdays controversial U.S. economic data also provided support for commodities, including oil. Wednesdays employment data, which was a positive sign for Friday’s Unemployment Rate and Non-Farm Payrolls, was offset by the country’s Trade Account deficit figure, which mismatched expectations by almost $5 billion. During May, the U.S. Trade Balance deficit widened to $45.027 billion, well above April’s revised reading of $40.149 billion and expectations for a narrowing to $40.100 billion.

Meanwhile, the ISM Non-Manufacturing Composite also disappointed, marking a lower reading compared to the previous month, while expectations were for an increase. The indicator for June stood at 52.2, well below 53.7 in May and failing to meet projections for a rise to 54.

Investors are now looking ahead into Friday’s key Unemployment Rate and Change in Non-Farm Payrolls indicators, which will provide further information on the pace the U.S. economy is recovering at. Preliminary estimates suggest a 0.1% fall in the Unemployment Rate, 7.5% down from 7.6%. Change in Non-Farm Payrolls are expected to stand at 165 000, down from 175 000 in May.