Oil futures fall on stimulus speculations, inventories data in focus

Both West Texas Intermediate and Brent benchmarks fell in early European trading on Tuesday as investors weighed comments by Fed officials implying an earlier-than-projected stimulus tapering against expectations that U.S. crude inventories snapped eight straight weeks of gains last week and fell by 1 million barrels. However, market sentiment continued to be dominated by Janet Yellens dovish statement last week. The market drew support by ongoing turmoil in Libya, while investors awaited the next round of talks between Iran and world powers on the nations disputed nuclear program.

On the New York Mercantile Exchange, WTI crude for delivery in January traded at $93.62 per barrel at 8:26 GMT, down 0.07% on the day. Prices shifted in a narrow range between days high of $93.75 and session low of $93.39 a barrel, near November 14s 5-1/2-month low of $92.53 a barrel. The U.S. benchmark fell by 0.1% on Monday and extended its weekly decline on Tuesday.

Meanwhile on the ICE, Brent futures for settlement in January slipped by 0.34% to $108.10 a barrel by 8:28 GMT. Prices held in a days range between $108.33 and $107.93 a barrel. The European benchmark fell by 0.1% on Monday and was down little over 0.2% on weekly basis on Tuesday.

Oil prices were pressured yesterday as hawkish comments by a Fed official spurred speculations for an earlier-than-projected stimulus tapering after market sentiment was largely dominated by Janet Yellens Senate hearing last week.

President of the Federal Reserve Bank of New York, William Dudley, a supporter of Feds quantitative easing program, pointed to improving labor market and stronger-than-expected third quarter growth as signs of optimism for the U.S. economic recovery. Investors are now awaiting the release of FOMCs October meeting protocols on Wednesday to further assess whether the Federal Reserve might scale back its massive bond buying program earlier than expected.

Shinichiro Kadota, chief FX strategist at Barclays, commented for Reuters: “Comments from Fed officials yesterday sounded a bit hawkish. To assess where the consensus is at the Fed, the Feds policy minutes tomorrow will be important.”

Strengthening of the U.S. dollar was however limited as market sentiment continued to be largely dominated by comments from Fed Vice Chairwoman Janet Yellen who pledged last week to keep the central banks current bond purchasing pace until a robust recovery is at hand, if she is confirmed as next Fed chief. According to a Bloomberg survey of 32 analysts conducted on November 8, the Federal Reserve will most likely leave its monetary stimulus intact until FOMCs March 18-19 meeting.

Inventories data

Losses were however limited by expectations that U.S. crude oil inventories fell last week, snapping eight consecutive weeks of gains. According to the median estimate of seven analysts surveyed by Bloomberg, crude supplies fell by 1 million barrels in the week ended November 15, retreating from the highest level since June. Motor gasoline inventories are projected to have risen by 900 000 barrels, while distillate fuel stockpiles likely remained unchanged after falling for three consecutive periods.

The industry-funded American Petroleum Institute will release its separate report later today. Its private report however is considered as less reliable than EIAs statistics as it is based on voluntary information provided by operators of refineries, bulk terminals and pipelines.

Iran, Libya

The oil market, and largely the Brent benchmark, drew support on recurring protests and violence in Libya, coupled with the lack of a deal between Iran and world powers on the Islamic republics nuclear program.

Clashes between Libyan militiamen and armed residents in Tripoli on Friday resulted in the death of 13 people, while more than 130 were wounded.

Meanwhile, Libya’s deputy intelligence chief was kidnapped outside Tripoli’s international airport on Sunday, only a month after the prime minister was held captive for a day, reinforcing the government’s inability to regain its grip.

Militia retreated from Tripoli on Monday and took up positions around the city. Output fell to an average of 450 000 barrels of oil per day in October, down from 1.45 million bpd a year earlier, data by Bloomberg showed.

Also fanning negative sentiment, data by the Joint Organisations Data Initiative showed Saudi Arabia, OPEC’s leading producer, exported the most crude in September since November 2005. The nation pumped an average of 10.12 million barrels of crude per day and shipped 7.84 million in September.

Market players also awaited the conclusion of the next round of talks between Iranian diplomats and their counterparts from the five permanent members of the U.N. Security Council and Germany. A senior U.S. official hinted on Friday a deal with Iran was “quite possible” this week but U.S. Secretary of State John Kerry said on Monday he had no specific expectations about reaching an accord. If an agreement was to be struck, it would lift U.S. and EU sanctions on the Irans oil exports, paving the way for the return of more than 1 million barrels of oil per day to the global market. The two sides are to reconvene in Geneva on Wednesday.