Oil weekly recap October 21-25

West Texas Intermediate crude rose for a second day on Friday amid better than expected U.S. durable goods orders in September but settled the week nearly 3% lower, a sixth decline in seven, as disappointing manufacturing expansion in the U.S. and Europe and ample inventories fanned negative sentiment. Brent advanced on Friday but fell for a second consecutive week.

On the New York Mercantile Exchange, WTI crude for delivery in December settled at $97.87 per barrel on Friday, up 0.78% on the day. The American benchmark held in range between days high and low of $98.06 and $97.01 a barrel and settled the week 2.95% lower, a sixth weekly decline in seven.

Meanwhile on the ICE, Brent futures for settlement in December added 0.15% on Friday and closed the day at $107.16 per barrel. The European benchmark fell to a session low of $106.29, the weakest level since August 11, and settled the week 2.66% lower, a second consecutive retreat.

Market sentiment was dampened throughout the week after a delayed and regular EIA inventories reports on Monday and Wednesday marked a fourth and fifth consecutive rise in U.S. crude reserves. The EIA said on October 23 that U.S. crude supplies surged by 5.2 million barrels last week, 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%. U.S. crude oil imports fell by 348 000 barrels per day from a week earlier and averaged 7.7 million bpd.

The report also showed that gasoline production fell last week, while distillate fuel output increased, averaging 9.1 million and 4.8 million barrels per day, respectively. 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.

Inventories at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts, added 358 000 barrels to 33.3 million, a second consecutive increase.

Manufacturing data

Also fanning negative sentiment, 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.

Chris Williamson, Chief Economist at Markit, commented: “The flash PMI provides the first insight into how business fared against the backdrop of the government shutdown in October, and suggests that the disruptions and uncertainty caused by the crisis hit companies hard. The survey showed the first fall in manufacturing output since the height of the global financial crisis back in September 2009. We can expect GDP growth to have suffered a setback in the fourth quarter, but it is too early to estimate the extent of the shutdown. The Fed will be equally unsure of the underlying health of the economy, and will no doubt want to see the economic data stabilise, which could take until the end of the year, before making any firm policy decisions.”

In Europe, France’s Advance Manufacturing PMI fell to 49.4 from 49.8 in October, confounding projections for an increase to 50.1. Germany’s manufacturing activity managed to pick up and rose to 51.5 from 51.1, beating projections for a gain to 51.4. However, Germany’s business confidence unexpectedly fell for the first time in six months amid uncertainty of the Euro zone’s economic recovery. The IFO Business Climate index fell to 107.4 in October from 107.7 a month earlier, defying analysts’ projections for a surge to 108.0. The IFO Expectations index slipped to 103.6 from 104.2 in September, underperforming expectations for a gain to 104.5. The IFO Current Assessment index failed to meet expectations for remaining flat at 111.4 and inched down to 111.3.

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.

The market however drew support after a preliminary private gauge of China’s manufacturing expansion exceeded analysts’ expectations, supporting demand prospects in the world’s second-biggest consumer. The HSBC Flash China Manufacturing Purchasing Managers’ Index surged to a seven-month high of 50.9 in October, up from September’s final estimate of 50.2. The expansion was largely based on strong new orders. The report also showed that China’s Manufacturing Output Index rose to a six-month high of 51.0 from 50.2 in September.

However, market players will be keeping a close watch on China’s economic news after speculations for a restrictive monetary policy spurred concern over demand for raw materials. Investors remained wary on speculations for monetary tightening after China’s money-market interest rates rose to the highest in three months on Wednesday. The People’s Bank of China refrained from injecting cash on concern that ample credit could fuel inflation after the National Bureau of Statistics reported that home prices in four major cities rose to the highest since January 2011, while consumer inflation gained at the fastest pace since February.

Durable goods

The market received a boost on Friday after 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. August’s 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. August’s 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%.

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 September’s 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.

Fed stimulus outlook

Broad expectations that the Federal Reserve will refrain from scaling back its $85 billion per month bond purchases limited oils losses. A smaller than expected rise of U.S. non-farm payrolls in September and disappointing initial jobless claims last week supported most analysts view that tapering wont be seen until some point of 2014.

Also adding to that sentiment, the final October reading of the Thomson Reuters/University of Michigan Consumer Sentiment Index fell to a 10-month low of 73.2 after the 16-day partial government shutdown in October turned Americans more pessimistic about the economy. Analysts expected a retreat to 75.0 from the preliminary estimate of 75.2.

Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York, said for Bloomberg: “This political uncertainty is going to slow any momentum we’ve had in the past few months. If we come into December without any progress on a funding bill, consumers will start sitting on their hands and that will mean a slower rebound in spending.”

According to a Bloomberg survey of 40 analysts conducted on October 17-18, the Fed will begin decelerating its monetary stimulus in March.