Oil prices hold steady ahead of FOMC meeting conclusion, API data supports

Both West Texas Intermediate and Brent benchmarks posted minor advances on Wednesday after the American Petroleum Institute reported a third consecutive weekly decline in US crude inventories, while gasoline and distillate fuel inventories fell as well. Gains however remained in check as investors were reluctant to enter big positions before the conclusion of FOMCs two-day meeting later today. Rising crude imports in Japan provided some support.

On the New York Mercantile Exchange, WTI crude for delivery in February rose by 0.29% to $97.75 per barrel by 8:20 GMT. Prices shifted in a days range between $97.75 and $97.37 per barrel. The US benchmark was unchanged on Tuesday and extended its weekly advance to over 1.3% on Wednesday.

Meanwhile on the ICE, Brent futures for settlement in the same month traded at $108.60 per barrel at 8:22 GMT, up 0.12% on the day. Prices ranged between days high and low of $108.64 and $108.21. The European benchmark lost 0.8% on Tuesday but trimmed its weekly decline to little over 0.2% following Wednesdays rebound.

Oil prices gained support by a bullish industry report by the American Petroleum Institute. The trade association reported that crude inventories fell by 2.5 million barrels in the seven days to December 13. Motor gasoline supplies dropped by 481 000 barrels, the report showed, while distillate fuel stockpiles, including heating oil and diesel, declined by 434 000 barrels.

APIs data however is considered as less reliable than EIAs statistics as it is based on information provided by operators of pipelines, refiners and bulk terminals, while the government requires reports to be filed with the EIA. According to a weekly Bloomberg News survey of nine analysts, the Energy Information Administration is expected to report that US crude oil inventories fell by 3 million barrels last week. Motor gasoline supplies are projected to have added 1.5 million barrels last week, while distillate fuel stockpiles are expected to have remained flat, the survey showed.

West Texas Intermediate crude fell 1.3% last week after EIAs report showed last Wednesday a larger-than-expected increase in refined products inventories, suggesting soft demand in the worlds top consumer. Total motor gasoline stockpiles rose by 6.7 million barrels in the seven days to December 6, while distillate fuel inventories jumped by 4.5 million barrels last week to 118.1 million. This was the biggest gain in both the product groups since January 4.

Meanwhile, stockpiles at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts, jumped by 625 000 barrels to 41.2 million, the highest since July 26. Domestic crude production surged to 8.08 million barrels per day, the highest since 1988.

Oil prices also drew some support after data by Japans Ministry of Finance showed the Asian nations crude imports rose by 10.5% to 3.7 million barrels in November from a year earlier, brightening demand prospects.

“Markets are focused on the Fed decision,” said David Lennox, a resource analyst at Fat Prophets in Sydney, cited by Bloomberg. “Refining has been running at a high rate, and there appears to be a lot of finished product in the system. The EIA numbers will be closely watched by investors.”

FOMC meeting conclusion

The Federal Open Market Committee concludes a two-day meeting later today, which has kept investors cautious in the past days and avoided locking in big positions. Although a recent series of upbeat US data, including retail sales, industrial production, unemployment and third quarter growth, raised bets the Federal Reserve might trim its monthly bond purchases in December, the majority of economists havent shifted their expectations that the central bank will wait most likely until March.

Also supporting that view, the Department of Labor reported yesterday that consumer inflation in the US remained benign and well below Feds official target of 2%, leaving enough spare room for easy money supply. The consumer price index (CPI) rose 1.2% in November, compared to a year ago, short of analysts’ estimates of a 1.3% increase. In October, consumer prices jumped by 1.0%. Month-on-month, consumer inflation was flat, compared to October’s 0.1% decline and short of analysts’ projections of an increase by 0.1%.

Consumer prices, excluding food and energy costs, or core consumer prices, increased 1.7% in November from a year ago, the same as in October and in line with expectations. Month-on-month, Core CPI rose by 0.2% in November from 0.1% in October. Analysts’ forecasts pointed to a 0.1% gain. The Federal Reserve regards that core prices can be a better gauge of longer-term inflationary pressure, because they exclude the volatile food and energy categories.

Ben Le Brun, a market analyst at OptionsXpress in Sydney, said, cited by CNBC: “Oil and a lot of other markets will take their cues from the comments. My personal view is that we may get some form guidance on when the Fed may start to taper its stimulus. There is nothing to make the Fed rush at the moment. They are likely to play it very, very safe.”

The Federal Reserve may begin to scale back its $85 billion in monthly asset purchases at the committee’s policy meeting on December 17th-18th rather than wait until January or March, according to 34% of economists who participated in a Bloomberg survey on December 6th. In November’s survey, 17% of respondents projected a tapering in December.