WTI futures hover near one-week high on US supply data, Fed tapering

West Texas Intermediate held near yesterdays one-week high after the Energy Information Administration reported US crude inventories fell for a third consecutive week in the seven days through December 13. Prices were pressured by Feds decision to trim its monthly bond purchases by $10 billion but the central bank ensured interest rates will remain at rock bottom for much longer and any further tapering will occur only if the economy can handle it. The market gained support by an unfolding crisis in South Sudan, which coupled with ongoing supply outages in Libya spurred concerns over global supply. A stronger dollar weighed.

On the New York Mercantile Exchange, WTI crude for delivery in February traded at $98.02 per barrel at 8:34 GMT, down 0.05% on the day. Prices shifted in a range between session high of $98.14, near yesterdays one-week high of $98.26, and days low of $97.77 a barrel. The US benchmark added 0.3% on Wednesday and was up 1.6% on weekly basis by Thursday.

Meanwhile on the ICE, Brent futures for settlement in the same month stood at $109.40 per barrel at 8:34 GMT, down 0.21%. Prices ranged between session high and days low of $109.48 and $109.14 a barrel. The European benchmark jumped by 1% on Wednesday, offsetting Tuesdays decline, and was up 0.5% on weekly basis on Thursday.

The oil market drew support after a government report showed on Wednesday that US crude inventories fell for a third consecutive week in the seven days through December 13. Crude stockpiles fell by 2.94 million barrels in the seven days to December 13 and have declined by 18 million over the past three weeks.

Inventories at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, fell by 0.6 million barrels to 40.6 million from the preceding week and were well beneath last year’s 47.0 million during the comparable period.

US crude oil imports jumped by 870 000 barrels per day to 7.7 million bpd last week. Inbound shipments averaged over 7.5 million bpd over the past four weeks and were 9.4% below the same period a year earlier. US crude output fell by 17 000 barrels to 8.06 million bpd, retreating from a 25-year high.

Refinery utilization dropped to 91.5%, down from 92.6% from the previous week. Motor gasoline production jumped, while distillate fuel output decreased, averaging 9.3 million and 5.0 million barrels per day, respectively.

Total gasoline inventories rose by 1.3 million barrels in the seven days through December 13 to 220.5 million, outperforming projections for a 1.5 million build. Gasoline consumption surged 8% to 9.02 million barrels per day, the first increase in six weeks. Distillate fuel inventories, which include diesel and heating oil, fell by 2.1 million barrels to 116 million, defying projections to remain flat.

Fed stimulus

Prices were initially pressured after the Federal Reserve decided to trim its quantitative easing program as the economy outlook improved substantially, thus boosting the US dollar and weighing on dollar-denominated commodities. However, the effect on the market was largely muted as outgoing Fed Chairman Ben Bernanke pledged the central bank will continue to support the economy and wont reduce its bond purchases further until the economy can surely handle it.

“The action today is intended to keep the level of accommodation the same overall and to push the economy forward,” Bernanke said. “We are committed to doing what is necessary to getting inflation back to target.” The Fed suggested its key interest rate will remain at rock bottom for longer than previously promised.

Data on Tuesday showed that consumer inflation in the US remained benign and well below Fed’s 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%.

Feds balance sheet has swelled to almost $4 trillion as an attempt to revive the US labor market and put millions of unemployed Americans back to work. The central banks asset purchases will be divided between $40 billion in Treasuries and $35 billion in mortgage bonds, Bernanke said.

“The steps that we take will be data dependent,” he said. “If we’re making progress in terms of inflation and continued job gains, then I imagine we’ll continue to do, probably at each meeting, a measured reduction in purchases. If the economy slows, the Fed could “skip a meeting or two, and if the economy accelerates it could taper a bit faster,” Bernanke said.

The US dollar index, which measures the greenbacks performance against a basket of six major counterparts, traded at 80.63 at 8:33 GMT, up 0.02% on the day. The March contract held in a daily range between 80.62 and 80.80, the strongest level since December 3. The US currency gauge rose back to positive weekly territory on Wednesday by adding 0.6%. Strengthening of the greenback makes dollar-denominated raw materials pricier for foreign currency holders and limits their appeal as an alternative investment.

Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo, commented for CNBC: “Markets were worried that speculative money was going to come out. But what the Fed announced was an incremental change rather than a huge change. The Fed had also said they would not taper till they were sure the economy could handle it. That, and supply worries are supporting prices,” he referred to Libya and South Sudan.

Supply worries

Prices continued to draw support after the Libyan government failed to arrange a reopening of three key export terminals in Eastern Libya during the weekend, which kept a combined capacity of 600 000 bpd offline.

Ibrahim Al Jedran, a Libyan rebel leader, said on Sunday that the ports of Es Sider, Ras Lanuf and Zueitina will remain closed after the official government rejected his demands to share oil revenue with his self-proclaimed government. Jerdan had signaled that the eastern region known as Cyrenaica may sell crude without approval, if his terms were not met, leaving Libya’s current nationwide exports at 110 000 bpd from five ports under government control. Output amounted to 210 000 barrels per day last month, down from 1.55 million bpd in 2010.

Meanwhile, investors also eyed the escalating tension in South Sudan, which added to concerns over global supply as the market tries to offset losses from Libya. South Sudans army lost control of the town of Bor after three days of clashes between rival groups of soldiers, which aroused fears for a civil war.