WTI remains steady near 16-month high

WTI eased from Thursdays 16-month high but remained steady during early European trading as stable economic recovery signs in the U.S. boosted demand prospects in the worlds top consumer, while crude stockpiles fell for a third straight week. Brent also stood firm.

On the New York Mercantile Exchange, WTI crude for September delivery traded at $107.80 per barrel at 7:06 GMT, down 0.01% on the day. Prices held in range between daily high and low of $108.03 and $107.59 per barrel respectively. Light, sweet crude hit a new 16-month high on Thursday at $108.18 per barrel and surged 1.5%, extending this weeks gains to over 1.4% so far after advancing more than 9.8% during the preceding two. The spread between West Texas Intermediate and Brent touched an intraday low of a bit over $0.50 on Thursday, the narrowest since 2010.

Ken Hasegawa, an energy-trading manager at Newedge Group in Tokyo, said for Bloomberg: “The WTI-Brent spread may hit parity next week as a lot of people are betting on it now. The U.S. economy is doing much better than Europe and Asia, including China. Fundamentally WTI will be supported.”

Meanwhile on the ICE Futures U.S. Exchange, Brent oil for September delivery traded at $108.64 a barrel at 7:07 GMT, down 0.06% on the day. Prices held in a tight range between days high and low at $108.94 and $108.71 a barrel respectively. The European benchmark touched a three-month high on Tuesday, but is still on the red side for the week amid demand worries in key consuming countries. Brent trimmed its weekly decline to 0.3% after advancing more than 6.8% during the preceding two.

WTI surged yesterday as another batch of positive U.S. economic data boosted demand prospects in the worlds top consumer. 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.

Crude reserves with a third consecutive drop

Oil prices were also heavily supported this week by a third unexpectedly large drop in U.S. inventories last week, the longest run this year. U.S. refineries processed the most crude in eight years. 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.

Jonathan Barratt, chief executive of Sydney-based commodity research firm Barratts Bulletin, said for Reuters: “There a few key things that have happened in the market recently and one of them is the steep drawdown in crude stocks, which shows someone is buying a lot of oil and that is being used more for production. But still, the run-up in prices has been steep and is hard to justify fundamentally. Supplies are ample.”

Meanwhile, optimism about global demand rose amid news that China has urged local governments to support economic growth by speeding up spending this years budget. This comes after almost all of the countrys recent key economic indicators showed worse readings than the preceding periods and indicated the worlds second biggest economy, and oil consumer, is slowing down.

Bernanke comments

Oil, and other dollar-denominated commodities, also drew support as Fed Chairman Ben Bernanke reiterated his last weeks statement at his two-day testimony to Congress on Wednesday and Thursday. Bernanke reinforced Fed’s view that Quantitative Easing is still expected to be tapered within the year and brought to an end by mid-2014, if the requirements are fulfilled. However, the Fed chief stated the U.S. economy currently needs Fed’s accommodative monetary policy in the foreseeable future and it can even be accelerated, if recovery slows its pace.

This pushed the dollar down, benefiting raw materials. The dollar index, which tracks the greenbacks performance against a basket of six major counterparts, retreated from last weeks three-year high, settling 1.87% lower. This week, the U.S. currency gauge has so far declined more than 0.45%. On Friday, the dollar index for September settlement traded at 82.72 at 7:03 GMT, down 0.27% on the day. Futures held in range between 83.06 and 82.63.

Analysts ANZ said in a note: “Higher equity markets, supportive economic data and declining crude stocks all proved positive for WTI this week.”