Oil weekly recap, October 28 – November 1

Both West Texas Intermediate and Brent benchmarks retreated on Friday and settled the week at multi-month lows after U.S. crude oil inventories rose for a sixth straight week to the highest since June and the U.S. dollar rallied, pressuring down dollar-denominated commodities. A partial recovery of Libyas crippled crude output further weighed, pushing Brent down after the European benchmark remained mostly steady throughout the week.

On the New York Mercantile Exchange, WTI crude for delivery in December fell by 1.83% on Friday and settled the day at $94.61 per barrel, the lowest since June 21. The American benchmark fell to a session low of $94.39 during the day and closed the week 3.33% lower, a fourth consecutive weekly decline, the longest losing streak in more than a year. Prices slumped 5.8% in October.

Meanwhile on the ICE, Brent futures for settlement in December crumbled 2.7% on Friday, the biggest daily loss since June 20, and settled the day at $105.88 per barrel, the weakest closing price since July 4. Prices held in a wide range between days low of $105.79 and high of $109.35. The European benchmark settled the week 1.2% lower after it lost more than 3.4% in the preceding two five-day periods.

Oil prices plunged to multi-month lows this week after the EIA reported U.S. crude inventories rose for a sixth straight week to the highest since June and the U.S. dollar regained positions, limiting demand for commodities. The Energy Information Administration reported that U.S. crude stockpiles rose by 4.1 million barrels in the week ended October 25 to 383.9 million, the most since June. Analysts surveyed by Bloomberg expected an increase of 2.4 million barrels. Refineries utilization rose to 87.3% after it fell to 85.9% last week. U.S. crude oil imports declined by 197 000 barrels per day to 7.5 million from a week earlier.

The EIA also said that both gasoline and distillate fuel production rose last week and averaged 9.4 million and 4.9 million barrels per day, respectively. Total motor gasoline supplies dropped by 1.7 million barrels, outperforming expectations for a 200 000 barrels decrease, and were near the upper half of the average range for this time of the year. Distillate fuel inventories declined by 3.1 million barrels last week and remained near the lower limit of the average range. Participants in Bloomberg’s survey projected a drop of 1 million barrels.

Supplies at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts, rose by 2.2 million barrels last week, the most since December. Total inventories now equaled 35.5 million barrels, the highest level since August.

Meanwhile, Brent drew support throughout the week after renewed protests in Libya closed off key export terminals and oilfields, crippling the nations oil production. A spokesman of the state-run National Oil Corp. said on October 28 that output fell to between 250 000 and 300 000 barrels per day after remaining stable at 600 000 bpd for over a month. Exports from the OPEC member had fallen to around 90 000 barrels per day from the two offshore platforms, Al Jurf and Bouri, and had shown little signs of improvement. The export rate was just a fraction from the total capacity of 1.25 million bpd.

However, Ibrahim Al Awami, the Libyan oil ministry’s head of measurement and inspection, said for Bloomberg on Friday that his countrys production pace rose to between 350 000 and 400 000 bpd, 100 000 barrels per day more than previously pumped during the week. The partial recovery pressured Brent to move down together with WTI after the oil outages kept the European benchmark steady and had widened its premium to WTI to multi-month highs several days ago.

Meanwhile, OPECs output rose in October following the completion of maintenance work in Iraq, according to a Bloomberg survey. Asim Jihad, an oil ministry spokesman, said for Bloomberg that his country pumped 2.25 million bpd last month, up 8.8% from September. The groups combined production rose by 38 000 barrels per day to 30.621 million bpd.

Phil Flynn, senior market analyst at the Price Futures Group in Chicago, commented for Bloomberg: “The supply side has overtaken everything else. There’s plenty of oil around and the market is in breakdown mode. We’re also down because the dollar is up against the euro on expectations the ECB will cut interest rates, which is extremely bearish for the market.”

U.S. dollar

The oil market was also largely pressured by a stronger U.S. dollar that regained positions after a string of upbeat data, which fueled speculations the Federal Reserve might commence scaling back its bond purchases earlier than previously projected.

The U.S. dollar index, which measures the greenbacks performance against a basket of six major counterparts, rose for a sixth straight day by 0.59% to 80.80 on Friday. The December contract surged to a session high of 80.87, the strongest level since September 17, and settled the week 1.94% higher. Strengthening of the greenback makes dollar-denominated commodities more expensive for foreign currency holders and limits their appeal as an alternative investment.

The dollar rose to a 1-1/2-month high on Friday after a larger-than-expected expansion of the U.S. manufacturing sector in October added to other recent upbeat data. According to the Institute for Supply Management, manufacturing activity in the world’s biggest economy rose at the fastest pace in two and a half years. The ISM Manufacturing index surged to 56.4, the highest since April 2011, defying analysts’ projection for a drop to 55.0 from September’s reading of 56.2.

The strong manufacturing expansion in the U.S. was based on robust motor vehicle sales and the overall recovery in the housing market, despite recent downbeat data. The upbeat numbers suggested that the 16-day government shutdown in October had little or almost no effect on factory activity.

ISM’s report added to data released on Thursday which showed manufacturing activity in the Chicago region expanded in October at the fastest pace in two and a half years as orders and production surged. The Chicago Purchasing Managers’ Index surged to 65.9 from 55.7 in September, confounding analysts’ projections for a drop to 55.0. This was the highest level of activity since April 2011 and the biggest increase in more than three decades. Orders rose to the highest level in nine years.

Policy makers announced after the conclusion of FOMC’s two-day meeting on Wednesday that they still see the U.S. labor market and economy as a whole as fragile, but an underlying strength was notable.

The U.S. dollar was also supported after the Department of Labor reported that the number of people who filed for initial unemployment benefits in the week ended October 26 fell by 10 000 to 340 000, slightly underperforming the median estimate of analysts surveyed by Reuters for a drop to 339 000.

China data

Upbeat data from China provided the oil market with some support but couldnt shift market sentiment and only limited losses. Both a government and a private report showed on Friday China’s manufacturing sector expanded at a faster pace in October compared to the preceding month, implying robust demand prospects in the world’s largest consumer. Chinas National Bureau of Statistics reported that the Asian nation’s manufacturing Purchasing Managers’ Index (PMI) rose to a 18-month high of 51.4 in October from 51.1 in September, beating analysts’ predictions for a surge to 51.2.

A separate private report by Markit Economics and HSBC showed China’s manufacturing sector expanded at a faster pace than the preceding month and matched a preliminary reading. The HSBC China Manufacturing PMI surged to 50.9 last month, beating September’s 50.2.

Despite the slight advance, this was the strongest improvement in operating conditions in seven months. Output at plants rose for a third consecutive month and at the quickest pace since April due to stronger domestic and foreign demand as new orders and export orders surged. The report also marked the strongest expansion of new business from abroad in a year, supported by increased U.S. demand. This comes after data earlier in the month showed China’s economy grew by 7.8% in the third quarter, beating the preceding three months’ 7.5% GDP growth and suggesting the Asian economy will likely meet the government’s goal for a 7.5% annual economic expansion.

According to a weekly Bloomberg survey of analysts, WTI will likely extend losses through next week. Twenty out of 29 participants polled, or 69%, wagered that prices will fall during the next five-day period, while seven, or 24%, predicted futures will jump and the remaining two anticipated no significant change.