Oil hovers over multi-month lows on supply concern, Fed stimulus, China data

West Texas Intermediate marked a minor advance on Monday as investors locked in fresh positions after the U.S. benchmark fell to the lowest since June on Friday as the dollar rallied after a string of upbeat economic data. Brent posted a moderate gain as it drew support by ongoing turmoil in Libya, despite a recent partial recovery of production. The market also drew support after data by Chinas National Bureau of Statistics showed on Sunday the second biggest oil consumers service sector expanded at the fastest pace since August 2012, providing further signals the Chinese economy will probably meet the governments 7.5% growth goal.

On the New York Mercantile Exchange, WTI crude for delivery in December rose by 0.18% to $94.78 per barrel by 8:30 GMT. Prices held in range between days high of $94.86 and low at $94.46, near Fridays four-month low of $94.39. The U.S. benchmark fell by 1.8% on Friday and settled the week 3.3% lower, a fourth consecutive weekly retreat.

Meanwhile on the ICE, Brent futures for settlement in December added 0.51% and traded at $106.46 per barrel at 8:31 GMT. Prices shifted in a days range between $106.50 and $105.80 a barrel, near Fridays four-month low of $105.79. The European benchmark tumbled 2.8% on Friday and settled the week 1.2% lower after it lost more than 3.4% in the previous two five-day periods.

Market sentiment remained dampened amid ample U.S. crude inventories and a strong dollar. The Energy Information Administration reported last Wednesday that U.S. crude stockpiles rose for a sixth straight week by 4.1 million barrels in the week ended October 25 to 383.9 million, the most since June.

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

The U.S. dollar continued to draw support after last weeks string of upbeat data spurred speculations the Federal Reserve might commence trimming its quantitative easing program earlier than expected. The U.S. dollar index, which measures the greenbacks strength against a basket of six major peers, traded at 80.72 at 8:31 GMT, down 0.11% on the day. The December contract rose to a session high of 81.01, the strongest reading since September 17, while days low stood at 80.72. The U.S. currency gauge rose for a six straight day on Friday and settled the week 1.9% higher. Strengthening of the greenback makes dollar-denominated commodities more expensive for holders of other currencies 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.

Market players are awaiting a string of key U.S. economic data to provide further signals of when the Federal Reserve may begin tapering and also gauge oils demand prospects in the worlds top consumer. Manufacturing and services PMI data from the Euro zone, coupled with interest rate decisions and announcements by central bankers from the EU will determine the euro and British pounds strength, affecting the U.S. dollar.

Meanwhile in the U.S., factory orders in August and September, due for release on Monday, are expected to have marked an improvement compared to the preceding months. On Tuesday, the Institute for Supply Management will likely report the U.S. service sector expanded at a slightly slower pace in October from a month earlier. On Thursday, the preliminary reading of the U.S. Q3 GDP growth may show a smaller expansion compared to the preceding three months. Personal Consumption Expenditures probably fell in the third quarter, while core consumer spending is expected to have advanced. On Friday, Octobers non-farm payrolls are projected to have further eased, while the unemployment rate likely inched up to 7.3%, according to analysts expectations. Personal income and personal spending are projected to have risen at a slower pace from a month ago. The preliminary reading of the Thomson Reuters/University of Michigan Consumer Sentiment Index may show a rebound to 74.5 in November, up from 73.2 in October.

Ric Spooner, chief market analyst at CMC Markets, commented for CNBC: “We are still in a situation where we could see significant swings in the dollar and that will lead to a lot of volatility in oil and other commodities. This week it is going to be a data story, but we are likely to see further downside for oil.”

China data

Oil prices also drew some support after Chinas service sector expanded at the fastest pace since August 2012, indicating stabilizing economic activity. The National Bureau of Statistics reported on Sunday that Chinas non-manufacturing PMI rose to 56.3 in October from 55.4 in September, suggesting the worlds second-largest economy will likely meet the governments goal for a 7.5% economic growth this year.

Gordon Kwan, the regional head of oil and gas research at Nomura Holdings Inc. in Hong Kong, said for Bloomberg: “The better-than-expected PMI data suggests China is on track to stable growth. The party congress in November should underline that China is not going to slip below 7 percent in terms of GDP growth. That should reassure the international crude benchmarks.”

This comes after the government agency 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.

Libyan output

Oil prices, and especially the Brent benchmark, were underpinned last week as renewed protests crippled the nations crude oil production and exports. However, Ibrahim Al Awami, the Libyan oil ministry’s head of measurement and inspection, said for Bloomberg on Friday that his country’s production pace rose to between 350 000 and 400 000 bpd, 100 000 barrels per day more than previously pumped during the week.

The market however drew further support after leaders of an autonomy movement in eastern Libya declared a regional government on Sunday, challenging the weak central government.