Oil edges higher on QE outlook

WTI and Brent gained during the early European session as disappointing U.S. data eased concerns Fed will taper its monetary stimulus, U.S. refineries increased crude processing and industrial profits in China gained in May, compared to last year. The civil war in Syria renewed worries about the conflict spreading in nearby oil producing countries. Prices were however capped by the unchanged Crude Oil Inventories and increased gasoline and distillate-fuel inventories.

On the New York Mercantile Exchange, WTI crude for August delivery traded at $95.92 a barrel at 7:01 GMT, recording a 0.43% daily gain. Prices ranged between daily high and low at $96.13 and $95.36 respectively. Light, sweet crude settled yesterday 0.37% higher, after marking a 4.04% loss during last week.

Meanwhile, Brent oil August futures were 0.51% higher on the day. The European benchmark stood at $102.18 a barrel at 7:01 GMT and ranged between days high and low of $102.40 and $101.68 respectively. Brent settled 0.56% on the upside on Wednesday, following a steep 4.64% weekly drop last week.

Stimulus outlook shifting slightly yet again

Oil prices were supported by the unexpected disappointing data from the U.S. on Wednesday. The Bureau of Economic Analysis said final Q1 GDP reading mismatched projections of a 2.4% increase, standing at 1.8%, below Q1 2012′s 2.4% figure. Consumer Spending for the first quarter of the year was also lower than anticipated, gaining 2.6%, but straying from the 3.4% forecast and below last year’s Q1 reading of 3.4%. Core Consumer Spending managed to fulfill expectations and stood at 1.3%, remaining unchanged compared to last year. This dampened partially speculations over deceleration of Feds monetary easing program, which has been one of the main factors in commodities pricing as they are priced in an inverse relation to the dollar.

Carl Larry, president of Houston-based investment consultancy, Oil Outlooks and Opinions LLC, said for Reuters: “The weaker Q1 GDP numbers … show us that there are still blindspots in the U.S. economy and that probably means the Federal Reserve will be very conservative in pulling the plug on stimulus. This is the clearest indicator that the U.S. economy is now just taking baby steps towards recovery, and that is not enough to get the demand back to pre-2008 (economic crisis) levels.”

Crude reserves disappoint

Oil gains were capped yesterday by the Energy Information Administrations disappointing report on the Crude Oil Inventories. Reserves remained unchanged during the week ending June 21 and totaled 394.1 million, above the average range for this time of the year. The figure mismatched expectations of a 1.7 million barrels decline and disappointed investors, which expected a drop in reserves during the more active driving season in the U.S. Crude inventories rose to 396.3 million barrels earlier in June, the highest since July 1981.

The EIA also reported that gasoline stockpiles gained 3.7 million barrels during the last week and are well above the upper limit of the average range. Distillate fuel stockpiles rose by 1.6 million barrels, remaining in the lower half of the average range for this time of the year.

Refineries operated at 90.2 percent of their operable capacity. Gasoline and distillate fuel production both increased last week, which boosted partially sentiment on oil. Refineries operated at a 0.9% increased operating rate. Usually processing units are restarted at this time of the year after maintenance is completed before the peak driving season in the U.S.

Ric Spooner, a chief market analyst at CMC Markets in Sydney said for Bloomberg: “Inventories are staying stubbornly high as we move into the driving season, so that’s a negative development.”

Meanwhile, oil prices drew some support from positive China data, which followed a yet another downward revision of the countrys GDP forecast by Goldman Sachs several days ago. According to the National Bureau of Statistics, Chinese industrial companies increased their profits by 15.5% in May, compared to the same period in 2012.

Syrian unrest renewed

Irans newly elected president, Hassan Rohani, said the country will not shift its position on supporting Syrias president Bashar al-Assad. Meanwhile, according to the Wall Street Journal, the CIA has begun moving weapons to Jordan using a network of secret warehouses. The U.S. is planning to arm Syrian opposition within a month.

Meanwhile, investors are looking ahead into upcoming key U.S. economic data. On Thursday, Personal Income, Personal Spending, Core Consumer Spending for May, Pending Home Sales and Initial Jobless Claims are expected to provide information whether the U.S. economy is reaching its recovery goals and remain on track with Fed’s expectations. Next week, Non-Farm Payrolls will give further insight into the labor market in the U.S.

Lee Chen Hoay, investment analyst at Phillip Futures in Singapore said for Reuters: “This is the more definitive number for the Federal Reserve, because we know that they are comfortable with inflation levels, but unemployment is still not where they want it to be.”