WTI retreats as U.S. crude inventories expand above projections

West Texas Intermediate fell on Thursday after posting the biggest daily advance in two weeks on Wednesday after the Energy Information Administration reported that U.S. crude stockpiles rose much more than analysts anticipated. A nearly completed TransCanada pipeline that would move oil from Cushing, Oklahoma led to a 2% jump in prices yesterday. President Barack Obama failed to break a budget deadlock after meeting with Republican and Democratic leaders, indicating that resolving the issue will be tougher than expected. A report showing that U.S. private employers added less jobs in September than expected also damped sentiment. Tropical storm activity in the Gulf of Mexico drew investors attention.

On the New York Mercantile Exchange, WTI crude for delivery in November fell by 0.49% to $103.60 per barrel at 7:02 GMT. Prices held in a narrow range between days high and low of $103.92 and $103.56 per barrel respectively. The contract rose by 2% on Wednesday, the biggest daily advance since September 18, but trimmed its weekly gain to 0.7% after Thursdays fall.

Meanwhile on the ICE, Brent futures for November settlement slipped 0.33% to $108.83 a barrel at 7:01 GMT. Prices shifted in a days range between $109.09 and $108.77 per barrel. The European benchmark surged by 1.30% on Wednesday but reduced its weekly advance to 0.4% after falling on Thursday.

Oil prices surged on Wednesday, ignoring initially both EIAs bearish report and dampened market sentiment due to the U.S. government shutdown as TransCanada Corp. said it expects the southern part of its Keystone XL Gulf Coast pipeline to be finished by the end of this month. The company expects the link to begin moving crude oil from Cushing, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts, to the Gulf Coast refining center by the end of the year.

The market also drew support as a low-pressure area over the northwestern Caribbean Sea stood an 80% chance of becoming a tropical cyclone within the next 48 hours. It is now centered near the northeastern tip of the Yucatan Peninsula of Mexico and is moving north-northwestward into the southern Gulf of Mexico, the agency said. It also has 80% chance of becoming a tropical cyclone in the next five days.

BP Plc began to evacuate some personnel from its oil and gas platforms in the Gulf but production remained unchanged. Royal Dutch Shell, Anadarko Petroleum Corp and Hess Corp said they havent taken action yet but are monitoring the situation.

According to the Energy Information Administration, the Gulf accounts for 23% of U.S. crude production, 45% of petroleum refining capacity and 5.6% of domestic natural gas output.

Inventories data

Despite being initially unaffected after the release of EIAs bearish report, oil prices were pressured afterward and began to drop on Thursday. The Energy Information Administration reported that U.S. crude stockpiles rose by 5.5 million barrels in the week ended September 27. Reserves now totaled 363.7 million barrels and moved toward the upper average range for this time of the year. Refinery utilization dropped by 1.3% to 89.0% from a week earlier. Analysts surveyed by Bloomberg expected an increase of 2.5 million barrels and a drop to 89.3% of refineries’ operable capacity. Drops in supplies at Cushing, Oklahoma, have been shrinking recent weeks and marked a 59 000 barrels decrease last week.

Gasoline production fell last week and averaged 8.9 million barrels per day. Gasoline stockpiles rose by 3.5 million barrels, defying analysts’ anticipations for a decline of 700 000 barrels. Distillate fuel production increased and averaged 4.9 million barrels per day. Supplies fell by 1.7 million barrels last week, exceeding expectations for a drop of 1 million barrels. Total products supplied over the last four weeks averaged 19.0 million barrels per day, up 3.8% from the same period last year.

Tetsu Emori, a commodity sales manager at Astmax Investments in Tokyo, said for Reuters: “The upside potential for oil is quite limited, and the U.S. government shutdown is a negative factor and may hurt demand. The overall demand outlook is weak.” He however said that Brent shouldnt fall below the $100-$105 range as that is the preferred price level by most exports and supports shale oil production in the U.S.

Market sentiment was also dampened after President Barack Obama failed to break through the budget talks impasse after meeting with leaders of the Republicans and Democrats yesterday. A weaker dollar however gives some boost to dollar-denominated raw materials.

Also negative for oil, Automatic Data Processing Inc. together with Moody’s Analytics reported that private employers created 166 000 jobs in September, underperforming expectations for an increase to 175 000. August’s reading received a downward revision to 159 000 after being initially estimated at 176 000, indicating that the U.S. labor market remained fragile.

An Obama administration official announced that the Labor Department will defer releasing its monthly employment statistics, if the federal government shutdown persists. This means that today’s employment numbers will be the only ones before a budget for the new fiscal year passes, providing it additional weight on the market sentiment.

ANZ analysts said in a note: “A combination of softer-than-expected U.S. labour market data and continued concerns that deliberations over the extension of the U.S. debt ceiling will be protracted weighed on risk sentiment overnight.”

Democrats and Republicans still havent agreed over raising the nation’s debt limit, which would render the U.S. Treasury Department unable to borrow around October 17. According to the Congressional Budget Office, the U.S. won’t have enough money to pay all of its bills at some point between October 22 and October 31. Moody’s Investors Service warned that a failure to raise the debt ceiling would have a much worse impact on the financial markets than a government shutdown.