Oil extends gains prior to reserves reports

Oil extended gains on Tuesday as analysts forecast a drop in Crude Oil Inventories ahead of APIs and EIAs weekly oil inventories reports due on Tuesday and Wednesday respectively. Prices also drew support as positive U.S. and EU data pointed at economic recovery, which boosted demand prospects. Tension in Middle East and Africa provided an additional boost.

On the New York Mercantile Exchange, WTI crude for August delivery traded at $98.18 per barrel at 7:01 GMT, 0.19% higher on the day. Prices ranged between days high and low at $98.36 and $97.79 respectively. Light, sweet crude settled on Monday 1.65% higher as positive U.S. and EU data, combined with somewhat negative but matching expectations indicators from China, made demand prospects brighter. WTI ended last week 2.73% higher.

Meanwhile, Brent oil futures for August delivery traded at $103.19 a barrel at 7:01 GMT, marking a 0.18% daily gain. Prices ranged between days high and low at $103.36 and $102.93 respectively. The European benchmark settled 0.92% higher yesterday after recording a 1.07% weekly gain last week.

According to a Bloomberg survey prior to todays API oil reserves report, Crude Oil Inventories should have fallen by 2.63 million barrels during the week ending June 28. Gasoline stockpiles are expected to have risen by 600 000 barrels and distillate fuel reserves, including heating oil and diesel, are projected to be 1 million barrels more than the preceding week. The Energy Information Administrations report is due tomorrow at 15:30 GMT and is considered more reliable as the industry-funded American Petroleum Institute bases its report on voluntary information from operators of bulk terminals, pipelines and refineries.

However, rising shale oil and gas output in the U.S. reduced the need for the country to import crude, which forced sellers to turn to other markets. As a result, global oil supply remains ample despite geo-political risks and North Sea production disruptions.

Geo-political tension

Geo-political risks have been pushing oil prices up for some time now as concern over global supply has arisen. In Syria, the U.S. is expected to arm opposition with small arms within the month, which spurred concern of the conflict spreading to neighboring oil producing countries as most of them, including Iran, still support Bashar al-Assads regime.

Meanwhile, oil production in Libya has contracted by a third after protesters shut several oilfields as the country still struggles to maintain stability in the vital for the economy oil industry. Recent protests against Egypts president Mohamed Mursi also caused supply concern to arise. Recently at least eight people were killed near the headquarters of Mursi’s Muslim Brotherhood in Cairo. Armed forces handed Mursi an ultimatum on Monday, giving him 48 hours to share power. Meanwhile, Sudan and South Sudan still havent resolved their issues over Jubas alleged support, which is threatening to shut South Sudans oil export as the pipeline runs through Sudan territory.

Tony Nunan, a risk manager at Mitsubishi Corp. said for Reuters: “Brent has been caught in a range for a while as geopolitical risks keep markets up, but there is so much sweet crude coming out of the United States.”

Upbeat economic data

Oil prices were supported yesterday as overall positive PMI readings for the leading European nations boosted demand outlook. Spain’s Manufacturing PMI rose to 50.0, compared to May’s 48.1 reading and surpassing expectations of 48.9. This was the highest level since two years. Germany’s Final Manufacturing PMI failed to meet projections of 48.7 and stood at 48.6. However, France managed to outperform expectations of 48.3 and the country’s Final Manufacturing PMI rose to 48.4. Italy also surprised with a rise to 49.1, well above the 47.6 forecast and last month’s 47.3 reading. The Euro zone’s general Final Manufacturing PMI surpassed expectations of 48.7, which was also last month’s reading, and stood at 48.8.

Meanwhile, Great Britain’s Manufacturing CIPS also outperformed expectations of 51.0 and rose to 52.5, compared to last month’s 51.5 revised reading. In the U.S., the ISM Manufacturing index marked a serious improvement, rising to 50.9. This was well above May’s 49.0 value and forecasts of an increase to 50.5. Although any positive economic news from the U.S. raises concern about an earlier deceleration of Fed’s Quantitative Easing, which would push commodities down, increased activity in the industrial sectors of the biggest oil consumers boosts oil demand outlook, which pushed prices up.

China had its own batch of data released during the day, which however was not so positive, but generally met projections. According to the National Bureau of Statistics and China Federation of Logistics and Purchasing, China’s PMI fell to 50.1 last month, below May’s 50.8 figure, but above expectations of 50.0, which is the neutral level of the scale. Values above 50 indicate economic expansion and below 50 – contraction.

Investors are now looking ahead into this week’s key U.S. data that will show if the economy’s recovery keeps in line with Fed’s projections. The ISM Non – Manufacturing Composite index is due on Wednesday, coupled with the Trade Account, which is expected to show a 40 billion deficit. Factory Orders will be published on Tuesday. On Wednesday, the ADP Employment Change and Initial Jobless Claims will give a preliminary insight into the U.S. labor market’s state, prior to Friday’s most important Change in Non-Farm Payrolls and Unemployment Rate indicators.