WTI fluctuates above $108 on Syria jitters, U.S. inventories expectations

West Texas Intermediate held ground above $108 a barrel and Brent remained fairly unchanged well above the $115 mark as President Barack Obamas plan to initiate a punitive attack against the Syrian regime was backed by two opposition lawmakers, strengthening his position and fueling concern over a spreading conflict in the Middle East. Market players also eyed upcoming weekly U.S. inventories data.

On the New York Mercantile Exchange, WTI crude for delivery in October traded at $108.09 per barrel at 7:07 GMT, down 0.41% on the day. Prices held in range between days high and low of $108.60 and $107.98 a barrel respectively. Light, sweet crude rose by 1.5% on Tuesday but trimmed its weekly advance to 0.4% following Wednesdays decline.

Meanwhile on the ICE, Brent oil for October settlement slipped 0.10% to $115.57 a barrel by 7:06 GMT. Prices held in a tight days range between $115.83 and $115.52. Futures surged 1.2% on Tuesday, extending current weeks advance to 1.3% after adding 3.1% in the preceding two five-day periods.

Oil prices were supported by upbeat U.S. manufacturing data on Tuesday and an Israeli training missile launch, which rattled the markets before an official statement came out. Oil as also underpinned as President Barack Obama won support by House Speaker John Boehner and Majority Leader Eric Cantor, which would help him build a case to lawmakers who have questioned his decision to initiate an attack against the Syrian regime led by President Bashar al-Assad for the alleged use of chemical weaponry against civilians near Damascus on August 21.

While Syria is not a key oil producer, fears that the conflict might spread over to neighboring major oil producers in the region has been rattling the market. The Middle East accounted for 35% of global oil output in the first three months this year, International Energy Agency Data showed. China, the worlds second biggest oil consumer, which is also set for becoming top consumer by the end of the decade, imports as much as half of the oil it needs from the Middle East producers.

David Lennox, a resource analyst at Fat Prophets in Sydney, said for Bloomberg: “It will be very volatile until the U.S. decides on what it’s going to do. The market is going to be so jittery. It’s more the contagion effect and not so much Syria itself.”

Oil drew further support as Libyas output remained at a tenth of its capacity. Outages from the Middle East and Africa now amount at around 3 million barrels per day, 3.5% of global output. Lower exports from Libya and Iraq in September, coupled with a possible drop in OECD inventories to the lowest since 2004, might apply further pressure on the market.

Goldman Sachs analysts led by Jeffrey Currie said in a note: “Barring a more serious spillover from Syria into the broader region, the seasonal decline in oil demand in Saudi Arabia toward the end of the year and a gradual recovery in ex-Saudi OPEC crude production levels will likely reduce the pressure on OPEC spare capacity markedly.”

Upcoming weekly U.S. crude oil inventories data by the EIA fell in investors focus. The report is due on Thursday at 15:00 GMT due to Mondays Labor Day holiday. According to a Bloomberg survey of analysts, U.S. crude stockpiles are expected to have fallen by 2 million barrels last week and gasoline reserves probably dropped by 400 000 barrels. Distillate fuel inventories probably rose by 1 million barrels, the median estimate showed.

Manufacturing data

The oil market was well supported recently by upbeat manufacturing data from the U.S., Europe and China. The Institute for Supply Management reported on Tuesday that U.S. factory activity grew at the fastest pace in 26 months. The institute’s ISM Manufacturing index surged to 55.7 in August from 55.4 in July, confounding analysts’ expectations for a drop to 54.0. This was the highest reading since June 2011.

Meanwhile, a sub-index tracking new orders rose to 63.2 from 58.3 in the preceding month, while employment slipped to 53.3 from 54.4 in July. Values above the neutral level of 50 indicate an expansion in the respective sector.

On Sunday, the Chinese National Bureau of Statistics reported that the country’s manufacturing Purchasing Managers’ Index surpassed forecasts for a jump to 50.6 according to a Reuters poll and rose to 51.0 in August, the highest since last April, from 50.3 in July.

Earlier on Monday, according to a separate private survey by HSBC and Markit Economics, the HSBC Purchasing Managers’ Index surged to 50.1 in August, marking a major improvement from July’s 11-month low of 47.7 in July and ending a three-month declining cycle. Chinese manufacturers signaled a slight expansion in growth that was based on improving market conditions.

In economic news from Europe, Great Britain’s Manufacturing CIPS rallied to 57.2, the highest since 2 1/2 years, surpassing expectations for a surge to 55.0. This was the biggest advance in nineteen years. July’s reading was revised upward to 54.8 from an initial reading of 54.6.

The general Euro zone’s Final Manufacturing PMI surpassed analysts’ expectations for remaining unchanged at 51.3 and rose to 51.4, indicating the the single currency bloc’s economic activity is consistently improving.

Market players will be keeping a close watch on this week’s key U.S. data to gauge the American economy’s strength and oil demand outlook. On Wednesday, the U.S. trade deficit is projected to have widened to $38.6 billion in July from $32.224 billion in June. Thursday’s ADP Employment Change will provide preliminary information for the U.S. labor market and EIA’s weekly crude oil inventories report will give an insight into current U.S. demand. Also on Thursday, Q2 Non-Farm Productivity and Unit Labor Costs should have increased, while the ISM Non-Manufacturing Composite and Factory Orders are expected to have declined. On Friday, the U.S. Non-Farm Payrolls should have surged in August, while the Unemployment Rate likely remained unchanged at 7.4%. Average Hourly Earnings and Average Weekly Hours are anticipated to have increased as well.