Oil futures rebound as US supplies seen falling, mixed China data weigh

Both West Texas Intermediate and Brent benchmarks rebounded from Mondays losses supported by expectations a government report tomorrow may show U.S. crude oil inventories fell for a second week in the seven days to December 6, signaling demand in the worlds top consumer is picking up. News that TransCanada Corp. began injecting oil in its soon-to-become-operational extension of the Keystone pipeline further supported the market. Gains however remained limited as mixed data from China brought to an end a series of upbeat economic numbers, coupled with hopes for reopening Libyas two biggest export terminals.

On the New York Mercantile Exchange, WTI crude for delivery in January rose by 0.42% to $97.75 per barrel by 8:25 GMT. Prices shifted in a days range between $97.80 and $97.11 a barrel. The US benchmark fell by 0.4% on Monday, the first decline in seven sessions, offsetting Tuesdays advance.

Meanwhile on the ICE, Brent futures for settlement in the same month jumped by 0.30% to $109.72 a barrel by 8:24 GMT. Prices varied between session high and days low of $109.90 and $109.01 a barrel. The European benchmark fell by 2.3% on Monday, the most since November 1, but trimmed its weekly decline to 1.8% on Tuesday.

Oil prices drew support ahead of a government report that might show US crude stockpiles fell for a second consecutive week in the seven days through December 6, suggesting the awaited pick up in demand is at hand. According to a weekly Bloomberg News survey of analysts, crude inventories in the worlds top consumer likely dropped by 3.0 million barrels last week after marking the first weekly decline in eleven weeks in the preceding period.

Motor gasoline supplies are projected to have risen by 2 million barrels, the survey showed, while distillate fuel inventories, which include heating oil and diesel, probably jumped by 2 million barrels as well. Refineries are predicted to have operated at 92.9% of their operable capacity, up 0.5% from the previous week, analysts said.

The industry-funded American Petroleum Institute will release its separate private report at 21:30 GMT. APIs data however is considered as less reliable than EIAs numbers as it is based on voluntary information provided by operators of pipelines, refineries and bulk terminals, while the government requires reports to be filed with the Energy Information Administration.

China data

Analysts had hoped that Chinas National Bureau of Statistics will continue with its recent series of upbeat data on Tuesday, but some mixed numbers raised concern over the Asian economys momentum. Industrial production and fixed assent investments advanced at a slower pace from a month earlier, data showed, while retail sales unexpectedly picked up. Despite the increase in consumption, the broader picture pointed to a slowdown.

Chinas implied oil demand rose by 1.5% in November to 9.94 million barrels per day from a month earlier, the highest in five months.

Factory output expanded by an annualized 10.0% in November, 0.1% less than projected and below Octobers 10.3% gain. Meanwhile, fixed-asset investment excluding rural households rose by 19.9%, underperfoming projections and trailing the preceding months 20.1% gain. Year-on-year, retail sales unexpectedly jumped by 13.7%, exceeding both forecasts and the previous periods 13.3% gain.

Dariusz Kowalczyk, Hong Kong-based strategist at Credit Agricole CIB, said in a note, cited by Bloomberg: “On balance, demand weakened due to the poor investment results. While retail sales suggest improved consumption, a broader look at the data points to a slowing economy.”

Todays data contrasted with better-than-expected numbers which the Chinese agency released over the past couple of days. Strong demand from abroad pushed exports to the highest since April, driving the trade surplus to the widest in almost five years. Meanwhile, a slight deceleration in monthly consumer inflation suggested a slowdown, but was also seen as favorable for the Chinese government to be able to push on with reforms and ease money supply, if needed.

Worse-than-expected data from Germany released on Monday suggested a slow start in the fourth quarter and continued to weigh on the market, especially the Brent benchmark. The leading EU nations industrial production unexpectedly contracted by 1.2% in October, a second consecutive decline, defying projections to rebound by 0.8%. Septembers reading was revised up to show a 0.7% decline, up from initially estimated at -0.9%.

At the same time, Germanys trade surplus narrowed down to €16.8 billion in October, trailing expectations for a moderate decline to €18.0 billion from Septembers €18.7 billion.

Mark Keenan, a commodity strategist at Societe Generale in Singapore said for CNBC: “Closer to the Brent market, the German data has highlighted a reasonably disjointed recovery within Europe.”

TransCanada pipeline

Oil prices however drew support after TransCanada Corp. said it began injecting oil into to the southern extension of its Keystone pipeline on December 7 and the company is expected to inject 3 million barrels in the coming weeks. The 700 000 bpd portion of the pipeline will relieve a supply glut at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, by connecting it to Port Arthur, Texas.

The company said it will begin taking receipts and the extension will be brought online by mid-January.

Ongoing supply outages in Libya, the holder of Africas biggest crude reserves, continued to aid prices. According to Saleh Al Etweish, leader of Libya’s Al Magharba tribe, members of the tribe will meet today to discuss reopening of the countrys two biggest export terminals, Es Sider and Ras Lanuf. A statement will be issued following the meeting today, showing if an agreement has been struck to bring back online the ports combined capacity of 600 000 barrels per day.

Libya has lost more than $7 billion after protests crippled its crude output and exports, bringing them to a fraction of their capacity. Even more concerning, the country faces new competition from Algeria and Nigeria, which could further worsen the situation, Oil Minister Abdelbari al-Arusi said.