Oil steady on Obama comments, global output, inventories data

Both West Texas Intermediate and Brent benchmarks were little changed on Tuesday after President Barack Obama said on Monday he would support measures to avoid a U.S. debt default. Recovered output in the Gulf of Mexico after tropical storm Karen dissipated and expectations for a 21-month high output of North Sea crude in November pressured the market. Weekly U.S. inventories data fell in focus.

On the New York Mercantile Exchange, WTI crude for delivery in November rose by 0.34% to $103.39 per barrel at 6:55 GMT. Prices held in range between days high and low of $103.21 and $102.87 a barrel respectively. Light, sweet crude retreated on Monday but trimmed its weekly decline to 0.2% after advancing on Tuesday.

Meanwhile on the ICE, Brent futures for November settlement traded at $109.76 a barrel at 6:55 GMT, up 0.07% on the day. The contract held in a narrow range between session high and low of $109.78 and $109.38 a barrel respectively. The European benchmark rose by 0.4% on Monday and extended its weekly advance to 0.4% on Tuesday.

Market sentiment received a boost after President Barack Obama said on Monday that he would support a short-term increase of the U.S. borrowing limit to avoid an unprecedented debt default. This comes after the partial U.S. federal government shutdown entered a second week, threatening to impact negatively the economys Q4 growth after most economists expected the budget impasse to be short-lived. According to JPMorgan analysts, every week of shutdown reduces the economic expansion in the last three months by an annualized 0.12%.

Michael McCarthy, chief market strategist at CMC Markets in Sydney, said for CNBC: “Energy markets are carefully watching the situation in the United States. Its not so much about what is happening right at the moment, but how it will all work out. Volumes are woeful at the moment, and we see a lack of commitment on either side.”

Republican House Speaker John Boehner pledged on Sunday not to raise the nation’s borrowing limit without a “serious conversation” about what is driving the debt. Boehner however said he doesn’t intend to let the government default, something which he told his fellow members behind closed doors, even if it involves using Democratic votes.

Prices drew some support by a weaker dollar with the dollar index remaining near October 3s 8-month low. The December contract rose by 0.13% to 80.12 on Tuesday at 6:54 GMT and held in range between days high and low of 80.15 and 79.98. The U.S. currency gauge fell by 0.2% on Monday after losing almost 1.8% in the previous three weeks. Weakening of the greenback makes dollar-priced raw materials cheaper for foreign currency holders and boosts their appeal as an alternative investment.

Gulf supply, North Sea

The market however remained pressured as output in the Gulf of Mexico was restored on Monday after tropical storm Karen forced producers to evacuate personnel from platforms over the weekend, resulting in a 2/3 loss in production on Saturday. 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.

Also negative for prices, supply of North Sea crude which underpins the benchmark is expected to reach a 21-month high in November, according to loading programs. Shipments are set to average 980 000 barrels per day, up from 890 323 bpd in October.

Separately, the Energy Information Administration may report on Wednesday that U.S. crude and gasoline stockpiles rose last week, while distillate fuel inventories fell. According to a weekly Bloomberg survey, crude supplies probably added 1.6 million barrels, while gasoline stocks gained 1 million. Distillate fuel inventories are projected to have declined by 1.4 million barrels. Refinery utilization most likely fell to 88% from 89% in the preceding week as refineries were idled for maintenance after the peak driving season in the U.S. ended with Labor Day on September 2.

The industry-funded American Petroleum Institute will release its separate oil inventories data later on Tuesday. APIs statistics however are considered as less reliable than EIAs data as they are based on voluntary information from operators of pipelines, refineries and bulk terminals.

Meanwhile, a private survey showed that Chinas service sector expanded at a slower pace than in August, defying a government report earlier in the month which showed the sector grew the most in six months. The HSBC China Services Business Activity Index marked a moderate rate of increase, posting at 52.4 in September, down from 52.8 in August.

In the meantime, the HSBC China Composite Output Index, which covers both the manufacturing and service sectors, stood at 51.2 in September, down from 51.8 in August. However, output growth has now been recorded for a second month with manufacturers reporting a further increase in order book volumes. At service providers, new order growth slowed from August but nevertheless marked an improvement.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented on the report: “Chinas services activity growth appears to be stabilising at a faster pace than in 2Q. This led to a renewed expansion of employment from the contraction in August. Combined with the gradual improvement of the manufacturing PMI, the Chinese economy is still on the way to a modest recovery. But a more consolidated and sustainable recovery requires structural reforms.”