WTI futures hover near 7-week high as US crude stockpiles decline, pipeline news

West Texas Intermediate held near the highest in 7 weeks after an industry report showed yesterday that crude stockpiles in the US fell more than expected last week, indicating a pick up in demand. The oil market gained further support as two new pipelines are expected to relieve a supply glut at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts. Gains however remained limited as senior Iranian officials indicated on Tuesday that progress has been made in implementing the recently struck groundbreaking nuclear deal between the Persian Gulf nation and six world powers, while a probable reopening of three of Libyas export terminals may further erode global supply concerns.

On the New York Mercantile Exchange, WTI crude for delivery in January fell by 0.10% on the day to trade at $98.42 a barrel at 8:19 GMT. Prices shifted in a days range between a seven-week high of $98.75 and session low of $98.34 a barrel. The US benchmark rose by 1.4% on Tuesday, the second highest daily gain in more than a month, and was up 0.65% on weekly basis on Wednesday.

Meanwhile on the ICE, Brent futures for settlement in the same month traded at $109.51 per barrel at 8:20 GMT, up 0.12% on the day. Prices shifted in a narrow daily range between $109.70 and $109.21 a barrel. The European benchmark added 0.3% on Tuesday and further trimmed its weekly decline to 2% on Wednesday. Brents premium to its US counterpart narrowed to $10.87 yesterday, the lowest since November 8 based on closing prices.

The oil market drew support after the industry-funded American Petroleum Institute reported on Tuesday that crude stockpiles in the worlds top consumer fell more than anticipated last week, marking a second consecutive decline after ten straight weekly gains. Inventories shrank by 7.5 million barrels in the seven days to December 6, the API reported, exceeding estimates by more than two times. US motor gasoline supplies jumped by 6.27 million barrels, while distillate fuel inventories, which include diesel and heating oil, jumped by 1.18 million barrels.

APIs industry data however is considered less reliable than EIAs statistics as its based on voluntary information provided by operators of refineries, pipelines and bulk terminals, while the government requires reports to be filed with the Energy Information Administration. According to a weekly Bloomberg News survey of analysts, the Energy Departments statistical arm will likely report later today that US crude oil inventories fell by 3.0 million barrels last week, while motor gasoline stockpiles added 2 million. Distillate fuel supplies are projected to have gained 1.55 million barrels, while refineries likely operated at 92.9% of their operable capacity, up 0.5% from a week earlier.

The oil market, and especially the American benchmark, continued to draw support as two new pipelines are expected to relieve a supply glut at Cushing, Oklahoma. TransCanada Corp. said it began filling oil into 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 by connecting it to Port Arthur, Texas.

Meanwhile, Royal Dutch Shell advanced on Tuesday in moving a glut of light sweet oil from Texas to Louisiana after it filed tariffs with federal regulators. The pipeline should come online by the end of the year, a company spokesman said.

OPEC output

Market players however remained wary after senior Iranian officials suggested on Tuesday that progress has been made in implementing the recently struck groundbreaking deal between the Islamic republic and six major powers on curbing its disputed nuclear program.

Torbjorn Kjus, a DNB analyst, said in its 2014 outlook report, cited by CNBC: “If a broad-based deal with Iran can be reached during the next six months of negotiations, the price picture could turn out much more bearish than our forecast of $102 a barrel for 2014.”

Also fanning negative sentiment for prices, Libyas two biggest export terminals might be reopened by December 15th, bringing back online a combined capacity of 600 000 barrels per day. Brigadier Idris Bukhamada, the head of the Petroleum Facilities Guard, said for Bloomberg yesterday that Ibrahim Al Jedran, a former regional PFG commander whose men shut off five terminals starting July 28, agreed to the resumption after intervention by the Al Magharba tribe.