Oil rallies on upbeat U.S. and China data

Oil prices extended Wednesdays advance on Thursday as upbeat U.S. and China economic data offset EIAs bearish inventories report. Both benchmarks are back on track posting their best monthly performance since August 2012 and Brent drew further support amid concern over supply disruptions in the Middle East and North Africa.

On the New York Mercantile Exchange, WTI crude for September delivery traded at $105.56 a barrel at 7:03 GMT, up 0.50% on the day. Prices ranged between a weeks high of $105.71 and days low of $105.11. Light, sweet crude surged 2.14% on Wednesday following upbeat U.S. and China economic data and erased previous weekly losses, advancing over 0.9% so far this week.

Meanwhile on the ICE, Brent oil for September delivery traded at $107.82 a barrel at 7:04 GMT, marking a 0.11% gain on the day. Prices held in range between $108.15, the highest since July 24, and $107.66 a barrel. Futures surged 0.95% on Wednesday, extending the current weeks advance to over 0.6%.

Crude inventories rise

Both West Texas Intermediate and Brent benchmarks returned to posting their best monthly progress since August last year as unexpectedly strong U.S. and China data defied analysts grim projections regarding the state of the worlds top two economies. This offset The Energy Information Administrations bearish crude reserves report, which showed U.S. crude oil inventories gained, rebutting analysts expectations for a fifth consecutive drop.

The government agency reported that crude stockpiles increased by 431 000 barrels, or 0.1%, in the week ending July 26. Refineries’ input averaged 16.0 million barrels per day, which was 66 000 bpd below the preceding week’s average. Refineries operated at 91.3% of their operable capacity, behind last week’s 92.3% and projections for a rise to 92.5%. Gasoline production increased, while distillate fuel output decreased, averaging 9.5 million and 4.8 million barrels per day respectively.

The EIA also reported that total gasoline stockpiles increased by 0.8 million barrels, or 0.3%, last week, which was above the upper limit of average range for this time of the year. Distillate fuel inventories dropped by 0.5 million barrels and remained near the lower limit of the average range. Stockpiles at Cushing, Oklahoma, the delivery point for New York-traded crude and biggest U.S. storage hub fell by 1.9 million barrels to 42.1 million, a fifth consecutive drop.

EIA’s statistics completely rebutted analysts’ expectations prior to the report. According to a weekly Bloomberg survey, crude oil inventories were supposed to have fallen by 1.5 million barrels in the week ending July 26. Gasoline stockpiles should have shown a 1.5 million barrels decline, while distillate fuel were expected have increased by 450 000 barrels.

Upbeat economic data

However, unexpectedly positive U.S. and China data, coupled with Feds intention to keep its $85 billion bond purchasing program intact, offset EIAs bearish report and allowed both benchmarks to hit the highest level in a week.

The U.S. Advance Gross Domestic Product rose to 1.7% in the second quarter, outperforming analysts’ expectations for a decrease to 1.0% from the preceding period’s downward revised reading of 1.1%.

Data also showed that Consumer Spending grew more than anticipated too. Preliminary Personal Consumption Expenditures rose by 1.8% in the second quarter, surpassing expectations for a drop to 1.6% from the previous period’s 2.6% increase. Consumer spending accounts for as much as 70% of U.S. economic growth.

Employment expenditures in the world’s biggest economy advanced with a moderate pace, signalling that inflation remains stable and low, despite the $85 billion per month bond purchasing program. The Employment Cost Index surpassed expectations for a 0.4% gain and stood at 0.5%, aligning to first quarter’s upward revised reading.

Automatic Data Processing Inc. reported earlier in the day that the U.S. economy created more jobs than projected by analysts. July’s ADP Employment Change indicator rose to 200 000, compared to forecasts for a decline to 180 000 from June’s upward revised reading of 198 000 jobs.

Meanwhile, positive China data that surpassed analysts expectation boosted demand prospects in the worlds second biggest consumer. Chinas National Bureau of Statistics reported better-than-expected growth in factory activity. The Asian nations Purchasing Managers Index (PMI) rose to 50.3 last month, surpassing projections for a drop to 49.8 from Junes reading of 50.1. This was acknowledged as a positive sign for oil in the short-term, but analysts still expect contracting demand due to slowing growth as the Chinese government is trying to reshape the countrys economy.

A separate private PMI report showed an 11-month low in manufacturing activity. The country’s flash HSBC/Markit PMI fell to 47.7, compared to June’s final reading of 48.2, the lowest in 11 months. Today, Markit Economics confirmed its preliminary reading of 47.7, which signaled “a deterioration of business conditions for the third consecutive month”.

Chen Hoay Lee, an investment analyst at Phillip Futures in Singapore, said for Reuters: “While the positive official PMI data will provide support to crude oil prices in the short-run, it does not alter our view of slower growth in China and dampened oil demand, with the HSBC PMI data continuing to contract. As Chinese policymakers attempt to rebalance the economy away from investment-and-export-driven growth towards consumption-driven growth, we expect this to affect growth adversely in the short-run.”

Market players will be keeping a close eye on the remaining U.S. data this week to gauge demand prospects and strength of the dollar. The reported ADP data is considered as less reliable and investors are eyeing Thursday’s Initial Jobless Claims and Friday’s Unemployment Rate and the Non-Farm Payrolls figures. On Thursday, the Labor Department will likely report that 2 000 more people have filed for initial unemployment payments in the week ending July 27, up from the preceding period’s 343 000. On Friday, the government agency is expected to report that the Unemployment Rate has fallen to 7.5% in July, down from June’s 7.6%. Meanwhile, Non-Farm Payrolls probably declined by 10 000 to 185 000.

Apart from the employment data throughout the week, Personal Income, Personal Spending, Average Hourly Earnings and Factory Orders will be released on Friday.