WTI rebounds from three-month low on upbeat China data

Both West Texas Intermediate and Brent benchmarks rebounded on Friday after plunging more than 1% on Thursday as upbeat economic data from China fanned positive sentiment for oils demand prospects in the worlds second biggest consumer. However, gains were capped amid uncertainty ahead of a backlog of U.S. data delayed by the 16-day government shutdown.

On the New York Mercantile Exchange, WTI crude for delivery in November rose by 0.10% to $100.78 per barrel at 7:09 GMT. Prices held in range between days high and low of $101.04 and $100.61 per barrel respectively. Light, sweet crude fell to a three-month low on Thursday, settling the day 1.4% lower but trimmed its weekly decline to 1% on Friday.

Meanwhile on the ICE, Brent futures for December settlement rose by 0.16% to $109.29 per barrel at 7:08 GMT. Prices ranged between days high and low of $109.38 and $108.93 a barrel respectively. The European benchmark lost 1.3% on Thursday and reduced its weekly decline to 1.5% on Friday.

Oil prices received a boost and rebounded from multi-week lows after the Chinese National Bureau of Statistics reported that the worlds second biggest economy grew at a faster pace in the third quarter both on annual and quarterly basis, indicating prospects for steady demand in the future. Year-on-year, Chinas economy expanded by 7.8% in the in the third quarter, meeting analysts expectations and outperforming the previous periods 7.5% advance. Quarter-on-quarter, the Asian nations GDP grew by 2.2% from 1.7% in the previous three months and exceeded analysts projections for a 1.9% expansion.

The agency also reported that Chinas industrial production rose by 10.2% in September from a year earlier, an inch lower than Augusts 10.4% growth but beating anticipations for a fall to 10.1%. Chinas retail sales also inched down and rose by 13.3%, compared to expectations for a 13.5% rise from the preceding months 13.4% advance.

Jonathan Barratt, the chief executive officer of Barratt’s Bulletin in Sydney, said for Bloomberg: “China seems to be progressing compared with the rest of the world. This might provide a little bit more energy for oil to move higher.”

A weaker dollar also provided support. The U.S. dollar index, which measures the greenbacks performance against six major counterparts, traded at 79.68 at 6:56 GMT, down 0.07% on the day. The December contract fell to a 8-1/2 month low of 79.67 and extended its weekly decline to over 1%. The greenback tends to trade inversely to dollar-denominated raw materials as weakening of the dollar makes them cheaper for foreign currency holders and boosts their appeal as an alternative investment.

Gains limited

Gains were however capped after preliminary Reuters calculations based on government data showed that oil demand in China fell by 1.8% to 9.61 million bpd in September from a year earlier. This comes after the industry-funded American Petroleum Institute reported yesterday that U.S. crude oil supplies rose more than projected last week. Inventories added 5.94 million barrels, underperforming expectations for a 2.2 million increase according to a Reuters poll. Supplies at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts, rose for the first time since July. Motor gasoline supplies fell by 2.21 million barrels last week, API said, while distillate fuel reserves declined by 1.32 million barrels. API’s statistics are based on voluntary information from operators of pipelines, refineries and bulk terminals.

A Bloomberg survey of analysts showed that 23 of 38 analysts and traders polled expect oil to keep retreating through next week, while five wagered prices will gain and ten anticipate almost no change.

Also fanning negative sentiment, market players remained wary ahead of the upcoming release of delayed U.S. data without clear view of how much damage the 16-day partial government shutdown caused to the fourth quarter economic growth. Certainty that the debt impasse scenario will repeat again in February will leave oil pressured to the downside.

U.S. lawmakers managed to reach an accord to raise the nation’s debt ceiling and end a 16-day government shutdown but the agreement was only a temporary measure and was seen as kicking the can down the road. The bill provided government funding until January 15 and extended the nation’s borrowing authority through February 7. There was however no resolution to lawmakers’ long-term divides on fiscal policy and no major policy changes sought earlier by Republicans were achieved.

Tetsu Emori, a commodity fund manager at Astmax Investments in Tokyo, said for Reuters: “Overall sentiment is weak because of the U.S. debt issue. Without a permanent solution, it becomes difficult to decide whether to take on more risk or not.”

A positive atmosphere in the negotiations between Iran and Western major powers over Tehran’s nuclear program also laid pressure. Although there was no deal struck between the two sides after concluding a two-day meeting in Geneva, arrangements for a second round of talks within three weeks spurred speculations for a thaw in relations. This was the first round of talks between Iran and the Western nations since the election of the moderate President Hassan Rouhani who sought to end a decade-long dispute over Tehran’s nuclear program and ease sanctions on the country’s crude exports which have battered Iran’s economy. U.S. and EU diplomats said the negotiations were held in a constructive atmosphere and went into more detail. Specialists are expected to reconvene and continue discussions within three weeks.