WTI swings as U.S. durable goods advance on aircraft, motor vehicles demand, set for worst week since June

West Texas Intermediate crude rose to session highs after the Commerce Department reported that U.S. durable goods advanced by the most in three months and exceeded analysts projections on strong demand for commercial and military aircraft and motor vehicles. Prices however retreated on negative sentiment over ample supplies and poor manufacturing data from the U.S. and Europe.

On the New York Mercantile Exchange, WTI crude for delivery in December traded at $97.24 per barrel at 13:41 GMT, up 0.13% on the day. Prices surged to a session high of $97.69 per barrel minutes after the release of the data, while days low stood at $97.01. Light, sweet crude added 0.1% on Thursday and pared its weekly decline to 3.6% on Friday.

Meanwhile on the ICE, Brent futures for December settlement fell by 0.31% to $106.66 per barrel by 13:42 GMT. The contract fell to session low of $106.43, the weakest level since August 11, while days high stood at $107.39. The European benchmark shed 0.6% on Thursday, a third daily retreat in four, and extended its weekly decline to over 3%.

The Commerce Department reported on Friday that orders for U.S. durable goods rose by 3.7% in September, the most in three months, outperforming analysts projections for a 2% advance. Augusts reading received an upward revision and inched up to 0.2% from initially estimated at 0.1%.

However, the advance was mainly based on a surge in volatile aircraft orders and robust demand for motor vehicles. Core durable goods, which exclude transportation, fell by 0.1% in September, confounding expectations for a 0.5% rise. Augusts contraction was revised down to -0.4% after being initially estimated at -0.1%.

The report also showed that orders of non-military capital goods excluding aircraft, an indicator of business spending plans, decreased by 1.1%.

Joshua Dennerlein, an economist at Bank of America Corp. in New York, said for Bloomberg before the report: “Investment spending has been really soft this year. You’d expect to see rip-roaring investment because the groundwork is there, but you keep getting these uncertainty shocks, these policy shocks. People are going to hold off on investment because they’re not really sure.”

Despite the deal U.S. lawmakers managed to strike to avert a U.S. debt default last week, businesses may have scaled back their investment plans amid growing uncertainty and the fact the scenario will be repeated early next year. Lawmakers reached an accord that provides government funding until January 15 and extends the nation’s borrowing authority through February 7. However, there was no resolution to lawmakers’ long-term divides on fiscal policy and no major policy changes sought earlier by Republicans were achieved. Despite the end of the fiscal impasse, hundreds of thousands of federal employees were furloughed for weeks and many non-federal employees lost their jobs as contractors lost confidence.

Orders for commercial aircraft surged 57.5% in September following a 5.4% gain a month earlier. Boeing Co. said it received 127 aircraft orders this month, up from 16 in August. Orders for military aircraft and parts jumped 15.2% after plunging 11.5% the preceding month.

Robust demand for motor vehicles also contributed to Septembers three-month high surge. Data by the Ward’s Automotive Group showed that 15.2 million cars and light trucks were sold in September after rising in August at the fastest pace since 2007.

Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, said for Bloomberg: “The vehicle fleet has aged, so really vehicle assembly has nowhere to go but up.” He added that Boeing is also looking at a “bottomless pit of orders.”

U.S. inventories

Market sentiment was dampened throughout the week after the Energy Information Administration reported on Monday and Wednesday a fourth and fifth consecutive inventory gains. Wednesdays report showed that reserves surged by 5.2 million barrels, exceeding the median estimate of analysts surveyed by Bloomberg for a 3 million increase. Total supplies now stood at 379.8 million barrels and were above the upper range for this time of the year. Refineries utilization fell to 85.9% from 86.2%, defying projections for an increase to 86.5%.

Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said for Bloomberg: “Lower crude oil processing led to rising U.S. crude oil inventories, which pushed prices lower in recent days. Processing rates must almost reach summer peak levels to drain inventories again, given rising supplies.”

U.S. crude production surged to 7.9 million barrels per day, the highest since March 1989, while imports fell by 348 000 barrels per day from a week earlier and averaged 7.7 million bpd.

Total motor gasoline inventories fell by 1.8 million barrels and were near the top of the average range. Analysts expected a 1 million drop. Distillate fuel supplies rose by 1.5 million barrels, confounding projections for a 1.8 million drop, but remained near the lower limit of the average range for this time of the year.

Prices were also pressured after a preliminary report showed that manufacturing activity in the U.S. fell to a 12-month low and slowed down for the first time since September 2009. The decline was based on weak new orders growth, the slowest in six months, despite a rise in employment.

The Euro zone’s preliminary manufacturing Purchasing Managers’ Index rose to 51.3 in October from 51.1 in September, underperforming expectations for an increase to 51.4.

Market players are awaiting the final October reading of the Thomson Reuters/University of Michigan Consumer Sentiment Index due at 13:55 GMT on Friday. Analysts expect a decline to 75.0 from 75.2 in September.