WTI eases off a freshly hit 16-month high

West Texas Intermediate hit a new 16-month high on Friday amid piling up favorable fundamentals, narrowing the spread to Brent and closing in to parity.

On the New York Mercantile Exchange, WTI crude for September delivery traded at $108.09 a barrel at 14:41 GMT, up 0.26% on the day. Prices held in range between a freshly hit 16-month high of $108.92 and low at $107.35 per barrel. Light, sweet crude has advanced almost 1.7% so far this week, extending the previous two weeks 9.9% gain.

Meanwhile on the ICE Futures U.S. Exchange, Brent oil for September settlement traded at $108.93 per barrel at 14:40 GMT, up 0.21% on the day. Prices varied between days high at $109.18 and low of $108.45 per barrel. The European benchmark trimmed its weekly decline to little over 0.1% after gaining 6.85% in the last two weeks.

Oil prices received a boost as positive economic news form China brightened demand prospects. The Peoples Bank of China announced it will remove the cap on lending rates by rural cooperatives, which will become effective tomorrow. Raising the deposit rate ceilings should support domestic households financial wealth.

Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said for Bloomberg: “The China headline seemed to provide some support. We have a tightening supply outlook. Improved economic conditions here in the United States continue to boost the market.”

Meanwhile, oil prices remained supported by the third consecutive weekly drop in U.S. crude oil inventories this week. Reserves fell by 6.9 million barrels to 367.0 million in the week ending July 12, placing them in the upper half of the average range for this time of the year. Refineries operated at 92.8% of their operable capacity last week, the highest this year. Crude stockpiles at Cushing, Oklahoma, the delivery point for futures traded at the New York Mercantile Exchange and biggest U.S. storage hub fell by 882 000 barrels to 46.1 million.

Gasoline production decreased, while distillate fuel output increased, averaging 9.0 million and 5.1 million barrels per day respectively. U.S. gasoline stockpiles added 3.1 million barrels last week, standing well above the upper limit of the average range for this week of the year. Distillate fuel inventories increased by 3.9 million and were in the lower half of the average range.

Meanwhile, latest positive U.S. economic data was also supportive to oil. Yesterday, the U.S. Labor Department said in its report that fewer people than expected filed for unemployment benefits last week, compared to the previous one. Initial Jobless Claims during the week ending July 13 fell to 334 000, exceeding expectations of a drop to 345 000 from the preceding week’s downward revised reading of 358 000.

The four-week moving average fell by 5 250 to 346 000, down from the previous week’s revised average of 351 250.

Meanwhile, Philadelphia Fed Index also surprised market players. The indicator surged to 19.8, surpassing analysts’ projections for a drop to 8.0 from May’s 12.5 reading.

This pushed the American benchmark up, narrowing Brents premium to September WTI to as little as $0.08 cents on Friday, the lowest since August 2010. Dominick Chirichella of Energy Management Institute, said for Bloomberg: “Parity is right around the corner with WTI trading at a premium to Brent likely to happen in the not too distant future. The fundamentals are continuing to drive the spread with assistance from the technicals.”