Oil retreats from one-week high ahead of supplies data, FOMC meeting, Libyan output

Both West Texas Intermediate and Brent benchmarks fell on Tuesday ahead of EIAs weekly report that may show U.S. crude oil inventories rose to the highest since June last week, a sixth consecutive increase. Speculations the Federal Reserve will leave its bond buying program intact until the end of the year and a sharp drop in Libyas crude production limited losses.

On the New York Mercantile Exchange, WTI crude for delivery in December fell by 0.35% to $98.34 per barrel by 7:40 GMT. Prices held in range between days high of $98.62, near yesterdays one-week high, and session low of $98.23 per barrel. Light, sweet crude added 0.9% on Monday after losing almost 3% the previous week.

Meanwhile on the ICE, Brent futures for settlement in December slipped 0.32% to $109.11 per barrel by 7:40 GMT. The contract varied in a range between $109.52 and $108.91 per barrel. The European benchmark surged 2.3% on Monday, the most since October 10, after settling the previous week 2.7% lower.

Oil prices were pressured on Tuesday ahead of the release of this weeks U.S. stockpiles data. The industry-funded American Petroleum Institute is scheduled to release its separate numbers today but they considered as less reliable than EIAs statistics as its report is based on voluntary information gathered from operators of pipelines, refineries and bulk terminals.

The Energy Information Administration will publish its weekly report at 14:30 GMT on Wednesday. According to the median estimate of eight analysts surveyed by Bloomberg, U.S. crude inventories rose by 2.7 million barrels last week to 382.5 million, the most since June. Gasoline supplies are projected to have fallen by 550 000 barrels, while distillate fuel inventories dropped by 950 000 barrels, the poll showed.

Fed stimulus outlook

The oil market however continued to draw support ahead of FOMCs two-day meeting, which begins today, amid broad expectations the Federal Reserve will refrain from scaling back its massive bond purchasing program this year. Those expectations were further supported after data showed yesterday that manufacturing in the U.S. barely inched up in September, while pending home sales dropped the most in almost 3-1/2 years.

The National Association of Realtors reported that the number of contracts to buy previously owned homes fell by 5.6% and confounded analysts’ projection for a 0.1% increase after falling by 1.6% in August.

A separate report by the Federal Reserve showed that overall the industrial production’s expansion in September exceeded analysts’s projections after utilities rebounded 4.4% last month following five consecutive monthly declines. Mining output gained 0.2% but trailed August’s 0.6% advance.

However, manufacturing output managed to barely rise last month after the production of computer and electronic goods fell, indicating that business spending in the end of the third quarter eased. Output at factories inched up by 0.1% and August’s reading received a downward revision to 0.5%. Analysts surveyed by Bloomberg expected a 0.3% advance in September.

The downbeat data added to last weeks disappointing employment statistics. According to a Bloomberg survey of 40 analysts conducted on October 17-18, the Fed will begin decelerating its monetary stimulus in March.

Libyan output

Oils losses were further capped on renewed concern over supplies from members of OPEC. Brent surged the most since October 10 on Monday and WTI advanced nearly 1% after production in Libya dropped to as much as half after remaining stable for a month at around 600 000 barrels per day. The state-run National Oil Corp. said yesterday that minority Tuareg nomads disrupted crude flows from the Al-Sharara field. Libya News Agency said production will resume over the next 24 hours, citing Oil Minister Abdulbari Al-Arusi.

Meanwhile, Libyas prime minister said exports from the eastern port of Hariga will resume in a week after protests kept it shut for two months. This would bring back online capacity of 110 000 barrels per day.

Oil also drew support after a bomb explosion over the weekend near a pipeline carrying oil from a major field fueled supply concerns from Iraq.

Barclays analysts said in a note: “Two of the most volatile oil producers, Libya and Iraq, experienced serious unrest over the weekend, and we think there is a high risk that the security problems could grow more acute and affect output in both countries.”

Market players will also be keeping a close watch on the outcome of a meeting between Iranian diplomats and their Western colleagues on October 30-31 before a second round of negotiations is held in Geneva early next month. A senior Iranian official said on Saturday that his country hasn’t halted its uranium enrichment network, contradicting a statement by another lawmaker earlier in the week. Any news of scaling back the enrichment program would pressure down oil prices as Iran is expected to use such steps as a way to negotiate lifting some of the U.S. sanctions which curbed the nation’s oil exports and battered its economy.