WTI extends losses on rising U.S. inventories, disappointing employment data

West Texas Intermediate crude extended losses on Wednesday and fell to the lowest since July 1 after the American Petroleum Institute reported on Tuesday that U.S. crude oil supplies rose last week, a fifth consecutive gain, and on expectations that the Energy Information Administration will confirm the build on Wednesday. Disappointing employment data released on Tuesday raised concerns over oils demand prospects in the worlds biggest consumer, while speculations that the Federal Reserve will refrain from tapering its monetary stimulus until 2014 and a weak dollar limited losses.

On the New York Mercantile Exchange, WTI crude for delivery in December fell by 0.33% to 97.98 per barrel at 6:53 GMT. Prices plunged to a session low of $97.74, the lowest since July 1, while days high stood at $98.28 per barrel. The American benchmark retreated by 1.3% on Tuesday and extended its weekly decline to over 2.8% after it lost 2.7% in the preceding two five-day periods.

Meanwhile on the ICE, Brent futures for December settlement slipped 0.17% to $109.78 per barrel at 6:53 GMT. Prices held in range between days high and low of $110.06 and $109.62 a barrel respectively. The European benchmark rose by 0.2% on Tuesday but extended its weekly decline to over 0.2% on Wednesday. Brents premium to WTI rose to $12, the most since April.

Oil prices extended their decline after the industry-funded American Petroleum Institute reported yesterday that U.S. crude oil reserves rose by 3 million barrels last week, a fifth consecutive weekly gain. Motor gasoline supplies fell by 510 000 barrels last week, the organization reported, while distillate fuel inventories rose by 815 000 barrels. However, APIs statistics are considered as less reliable than those provided by the Energy Information Administration as they are based on voluntary information from operators of refineries, pipelines and bulk terminals.

According to a weekly Bloomberg survey of analysts, the EIA will likely confirm the 3 million barrels increase in U.S. crude inventories. The report is also expected to show that motor gasoline supplies fell by 1 million barrels, while distillate fuel inventories dropped by 1.8 million. Refineries are expected to have operated at 86.45% of their operable capacity, up from the preceding weeks 86.2%.

The Energy Information Administration said in its delayed report on Monday that U.S. crude oil inventories rose by 4.0 million barrels in the week ended October 11, reaching the highest level in three months at 374.5 million barrels. Motor gasoline stockpiles fell by 2.6 million barrels but remained above the upper range for this time of the year. Distillate fuel supplies decreased by 1.8 million barrels and remained near the lower limit of the average range but underperformed projections for a 2 million drop.

Inventories at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts rose by 366 000 barrels to 33 million, the first increase since July.

Oil reserves in China, the worlds second biggest consumer, rose to the highest in September since January 2010, official data showed.

Also fanning negative sentiment, the U.S. Labor Department reported that the U.S. economy added less jobs in September than the previous month, raising concern over demand prospects in the worlds top consumer. The government agency reported that U.S. non-farm payrolls rose by 148 000 in September, sharply underperforming a median forecast of 93 economists surveyed by Bloomberg for a 180 000 surge. August’s reading received an upward revision to 193 000 payrolls from initially estimated at 169 000, signalling that the U.S. labor market lost momentum prior to the 16-day government shutdown.

The U.S. unemployment rate, based on a separate Labor Department survey of households, fell by 0.1% to 7.2% in September, beating expectations to remain flat. However, the participation rate, which measures the number of people who are either employed or are actively looking for work, remained the lowest since August 1978 at 63.2%, indicating that the fall in the unemployment rate was based on people who stopped searching for a job.

Also pressuring oil prices, Libyas National Oil Corp. said that the countrys oil output has steadied at around 600 000 barrels per day during the last month as the government makes progress in ending protests that shut most of the nations oilfields and export terminals. Libyas oil production fell to a tenth of its 1.6 million bpd capacity in the beginning of September.

Stimulus outlook

Although the downbeat employment data curbed oils demand prospects, it also added to broad expectations that the Federal Reserve will refrain from trimming its monetary stimulus before 2014, benefiting raw materials. The disappointing payrolls included information for a pay period prior to the 16-day government shutdown in October, which will make policy makers wait for reliable and revised data for some time.

ANZ analysts wrote in a note: “There is also likely to be added volatility over the next few months, given hiring by some firms was likely to be delayed due to the fiscal uncertainty. In such an environment the Fed is likely to keep the foot firmly on the gas pedal with tapering a 2014 story.”

The Labor Departments disappointing numbers sent the U.S. dollar falling to multi-month lows, allowing dollar-denominated commodities to gain positions. The U.S. dollar index, which measures the greenbacks performance against six major peers, traded at 79.34 at 6:48 GMT, up 0.06% on the day. Prices fell to a near 9-month low of 79.19 earlier in the session, while days high stood at 79.35. The December contract shed almost 0.6% on Tuesday, extending its weekly decline to over 0.4%. Weakening of the greenback makes dollar-priced raw material cheaper for foreign currency holders and boosts their appeal as an alternative investment.