Oil lower on Fed stimulus outlook, supported by China data

Oil edged lower on Thursday following FOMCs July meeting protocols which revealed support among Fed members for tapering the central banks Quantitative Easing program through the end of the year. Also weighing on prices, supply concern which was spurred by protests in Libya closing export terminals began to wane. Prices were supported however as activity in Chinas manufacturing sector expanded to the highest level in four months as new orders rebounded.

On the New York Mercantile Exchange, WTI crude for delivery in October traded at $103.77 per barrel at 6:43 GMT, down 0.08% on the day. Prices ranged between days high and low of $103.92 and $103.54 per barrel respectively. Light, sweet crude fell 1.32% on Wednesday, a third consecutive daily decline, extending current weeks decline to 3.7%.

Meanwhile on the ICE, Brent futures for delivery in October fell to $109.56 per barrel at 6:45 GMT, down 0.18% on the day. Futures ranged between days high and low of $109.78 and $109.49 per barrel respectively. The European benchmark slipped 0.32% on Wednesday, bringing its weekly decline to little over 0.9%.

Oil was pressured after the release of minutes from Federal Open Market Committees July meeting, which showed that most of the policy makers supported Fed Chairman Ben Bernankes timeline to taper the $85 billion bond purchasing program by the end of the year.

“Almost all participants confirmed that they were broadly comfortable with the committee reducing the pace of its securities purchases later this year,” the minutes revealed. Only some of the members stated that it is important to remain patient and evaluate additional information on the economy before making a decision regarding trimming Quantitative Easing.

Dollar-denominated commodities have largely been tracking shifting expectations for an earlier-than-expected deceleration of the central bank’s bond purchases, which have been pushing up commodities prices.

According to a Bloomberg survey of economists, 65% of the participants expected that the Federal Reserve will start trimming its $85 billion per month bond purchases after FOMC’s September meeting.

Meanwhile, the oil market was also pressured as supply concerns from Libya, which holds Africas biggest crude reserves, began to wane as the Marsa al Brega port, which was reopened on Tuesday, is expected to handle oil exports in the next few days. However, security guards protests still keep blocked the two largest terminals, Es Sider and Ras Lanuf.

Meanwhile in Egypt, ongoing clashes between the Egyptian military forces and protesting supports of ousted Islamist President Mohamed Mursi continued to underpin the market amid concerns of the conflict spreading to neighboring oil producing countries and fear of disruption of oil flows and shipments through the Suez Canal and Suez-Mediterranean pipeline. However, the Egyptian army said it will guarantee the safety of the oil transportation through the state-controlled canal and pipeline.

China data

Oil prices drew support on Thursday by upbeat China manufacturing data and Wednesdays positive U.S. crude reserves report by the EIA.

The Chinese HSBC Manufacturing PMI, prepared by HSBC Holdings Plc and Markit Economics, surged to a four-month high of 50.1, signalling expansion that was based on a rebound in new orders. The figure outperformed analysts expectations for a surge to 48.3 from Julys final reading of 47.7, an 11-month low. The indicator added to promising reports for Julys factory output, retail sales and exports, providing positive signs that the worlds second biggest economy is stabilizing. China accounted for 11% of global oil consumption in 2012, making it the worlds second largest consumer.

Natalie Rampono, ANZ analyst, said for Reuters: “This is a good sign. Commodity prices should bounce from these levels.”

Oil also drew some support by a bullish U.S. government crude reserves report, which however remained in the shadow of FOMCs meeting protocols. The Energy Information Administration said that during the week ending August 16 U.S. commercial crude oil inventories decreased by 1.4 million barrels, or 0.4%, to 359.1 million, the lowest since September. This was generally in line with analysts’ expectations for a 1.5 million barrels drop, according to a Bloomberg survey. Refineries operated at 91.0% of their operable capacity last week, 1.6% above the preceding week’s percentage and confounding expectations for a 0.5% contraction.

The Energy Information Administration also reported that gasoline and distillate fuel output increased, averaging 9.4 million and 4.9 million barrels per day respectively. U.S. gasoline stockpiles fell by 4.0 million barrels, or 1.8%, last week and remained in the upper half of the average range for this time of the year, totaling 218.4 million barrels. Analysts expected a 1.5 million drop. Distillate fuel reserves increased by 0.9 million barrels to 129.4 million and are near the lower limit of the average range. According to Bloomberg’s survey, a 1 million gain was expected.

Market players will also be keeping a close eye on the remaining U.S. economic data coming later this week to gauge the economys strength and oil’s demand prospects. On Thursday, last week’s Initial Jobless Claims likely rose by 10 000 to 330 000, while the Markit Flash U.S. Manufacturing PMI for August is projected to have advanced to 54.0 from July’s 53.7. On Friday, July’s New Home Sales are expected to have declined to 0.490 million houses sold, down from 0.497 million in the preceding month.