Oil prices remain higher on reserves expectation

Oil prices continued to edge higher throughout the early European session, supported by projections U.S. oil reserves dropped during the week ending June 21. Even though China received a further downward revision of its growth forecast by Goldman Sachs, projections for demand picking up in the U.S. during the driving season boosted oil.

On the New York Mercantile Exchange, WTI crude for August delivery traded at $95.81 at 9:21 GMT, ranging between days high and low at $95.93 and $94.61. Light, sweet crude marked its biggest daily increase yesterday for the past three weeks after crumbling last week for three straight days.

Meanwhile, Brent oil for August delivery was also on the green side, standing at $101.87 a barrel at 9:21 GMT. The European benchmark was up 0.70% on the day, ranging between days high and low at $102.07 and $100.71 per barres respectively. Brent fell below $100 yesterday, pressured by the stronger dollar and Chinas downward revised growth forecast, only to rebound and settle the day 0.37% higher.

The Energy Information Administrations weekly crude oil inventories report is due tomorrow. A Bloomberg News survey shows crude reserves probably fell by 2 million barrels during the week ending June 1. Gasoline inventories are expected to have gained 1 million barrels. Distillate-fuel stockpiles also should have risen by 1 million. Refineries probably operated at 89.6% of capacity, up 0.3% compared to the preceding period, which should be the highest level since December.

The American Petroleum Institutes separate weekly oil reserve report is scheduled for publishing later today. However, it is considered less reliable than the EIAs because it is based on voluntary information from operators of bulk terminals, refineries and pipelines. Still, it does have an impact on oil pricing for a relatively short period after its release.

Ric Spooner, a chief market analyst at CMC Markets in Sydney said for Bloomberg: “The market does need to see inventories starting to come off. We’re into the driving season, and a failure to do that would be a concern.”

Goldman Sachs said today that world oil consumption will pick up in the second half of the year as the global economy continues to recover, which is in line with the recent OPEC, EIA and IEA reports on oil demand.

Stefan Wieler, a Goldman commodity analyst in New York, wrote in an e-mail for Bloomberg: “Global demand is picking up, both seasonally as we come out of the weakest period in the second quarter and on a year-over-year basis as global growth continues to recover, despite the recent China downgrade. We expect fundamentals to improve further going into the second half of 2013.” He referred to the recent downward revision of Chinas economic growth forecast by Goldman Sachs.

The Asian country’s GDP forecast for 2013 was cut to 7.4%, down from 7.8% and below the official target of 7.5%. GDP growth for the second quarter was also trimmed, standing at 7.5%, compared to the previous expectation of 7.8%. China’s economy is also expected to expand less in 2014 than anticipated. The 2014 forecast was revised down to 7.7%, down from 8.4%. This comes after The World Bank reduced its forecast for the nation’s economic growth to 7.7%, down from 8.4%. Earlier, during the last week of May, the IMF cut its own economy growth forecast to 7.75%, down from 8%.

Apart from Chinas economic slowdown pushing prices down, oil was also pressured by the stronger dollar that extended gains during the last days as Ben Bernanke announced a premature scale down of Feds Quantitative Easing will probably take place in the second half of the year. The program is also expected to come to an end by mid-2014, if key economic indicators match projections. This, coupled with increased crude reserves during the week ending June 14, caused oil prices to lose more than 6$ before rebounding yesterday. Brent oil dropped below the psychological barrier of $100, after which it erased earlier losses. Chinas cash squeeze situation also weighed.

Tony Nunan, oil risk manager with Mitsubishi Corp in Tokyo said for Reuters: “I think $100 is the support level for Brent. A lot of the oil price weakness has to do with the situation in China with the macro picture not looking good.”

Apart from drawing support by the early estimates of crude oil inventories ahead of EIAs report, oil was also boosted yesterday as Canadian pipeline operator Enbridge announced it had shut down a segment of the Athabasca pipeline network. The reason was a 750 barrels crude oil spill. However, Enbridge reported it restored operations on the southern segment of the network and will restart others in the next several days, which caused oil prices to ease.