WTI futures rise following bullish API report, China data weigh

Both West Texas Intermediate and Brent benchmarks rose on Thursday after a private report showed that US crude inventories fell more than projected last week, fueling speculations a government report will confirm an expected decline on Friday. The market continued to draw support as output in Libya, holder of Africas biggest crude reserves, remained crippled at around 250 000 bpd, while civil violence in South Sudan continued to keep the nations production at lower levels. Gains however were limited after a government report showed manufacturing activity in China expanded at the slowest pace in four months in December, suggesting moderating growth.

On the New York Mercantile Exchange, WTI crude for delivery in February rose by 0.52% to $98.94 per barrel by 8:18 GMT. Prices held in a narrow range between $98.96 and $98.54 per barrel respectively. The US benchmark lost 0.7% on Tuesday but trimmed its weekly decline to 1.2% following Thursdays gains.

Meanwhile on the ICE, Brent futures for settlement in the same month traded at $111.27 per barrel at 8:17 GMT, up 0.42% on the day. Prices shifted in a daily range between $111.35 and $110.92 a barrel. The European benchmark lost 0.3% on Tuesday and was down 0.7% on a weekly basis on Thursday.

Oil prices gained support after a report by the industry-funded American Petroleum Institute showed US crude inventories fell more than expected in the week ended December 27. Crude stockpiles dropped by 5.67 million barrels last week to 361.8 million, a fifth consecutive weekly decline. Government statistics due to be released tomorrow are expected to show a 2.83 million drop, according to a weekly Bloomberg News survey. Motor gasoline inventories are expected to have risen by 1.38 million barrels to 221.2 million and distillate fuel inventories likely jumped by 750 000 barrels to 114.9 million.

APIs data is considered as less popular than EIAs numbers as they are based on voluntary information provided by operators of refineries, pipelines and bulk terminals, while the government requires reports to be filed with the EIA.

Also fanning positive sentiment, consumer sentiment in the US rose more than expected in December, adding to a recent series of upbeat data from the worlds top consumer. The Conference Boards consumer confidence index rose to 78.1 in December, exceeding analysts expectations for a surge to 76.0 after falling to a 7-month low of 72.0 in November.

According to data by the U.S. Commodity Futures Trading Commission, money managers increased their net-long positions on WTI, or wagers that prices will rise, by 4.4% in the week ended December 24. This was the fourth consecutive rise and longest such streak since July.

Africa supply disruptions

The market continued to draw support as output in Libya, holder of Africas biggest crude reserves, remained at 250 000 bpd, just a fraction from Julys average production of 1.4 million barrels per day. Ports in the eastern parts of the country remained closed after the government failed to negotiate with rebel leaders their reopening a couple of weeks ago.

Meanwhile, South Sudans President Salva Kiir declared a state of emergency on Wednesday in two states, while his negotiators prepared for peace talks with rebels after two weeks of civil unrest resulted in the death of more than 1 000 people and cut nationwide production by a fifth to around 200 000 barrels per day.

An Iranian official said on Tuesday after the latest round of expert-level talks between Iran and six world powers that the two counterparts will implement an agreement in January on curbing the Persian Gulf nations nuclear program. If the deal goes through, this would raise the prospects for the return of around 1 million bpd of Iranian oil to the global market.

Jason Schenker, president of consultancy Prestige Economics said in a note, cited by CNBC: “It may be six months or more before all of the Iranian oil returns to the market – and it will depend on Irans political compliance. When that happens, however, Brent crude oil prices could fall swiftly.”

OPEC output slid to the lowest in almost 2-1/2 years in December as production in Venezuela fell. The group pumped an average 29.955 million barrels per day last month, down from 29.888 million bpd in November. The member countries oil ministers agreed on December 4 to leave output target unchanged at 30 million bpd for the next six months.

China manufacturing activity

However, prices were pressured after both a private and a government report showed manufacturing growth in China, the worlds second biggest consumer, slowed in December as export orders declined, suggesting moderating economic activity. According to Chinas National Bureau of Statistics, the Chinese manufacturing PMI posted at a four-month low of 51.0 in December, underperforming expectations for a drop to 51.2 from Novembers 51.4 reading.

Meanwhile, a private survey showed the Asian nations manufacturing sector expanded at the slowest pace in three months, but nevertheless remained in the expansion zone for a fifth consecutive month. The HSBC China Manufacturing PMI confirmed the preliminary reading of 50.5, retreating from Novembers 50.8. Growth slowed as output and new orders increased at a weaker rate, while new export orders fell for the first time since August. Staffing levels fell for a second month due to the non-replacement of voluntary leavers.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented on the report: “The moderation of Decembers final HSBC China Manufacturing PMI was mainly due to slower output growth. However, the final PMI sustained the fifth above-50 reading in a row thanks to a steady increase
of new orders. The recovering momentum since August 2013 is continuing into 2014, in our view. With inflation still benign, we expect the current monetary and fiscal policy to remain in place to support growth.”

Market players awaited the release of final manufacturing readings from Europe and the US later in the day. Also due on Thursday, the Labor Department is expected to report that the number of people who filed for initial jobless benefits in the week to December 28 rose by 4 000 to 342 000.