WTI futures set for weekly gain on US economy outlook, inventories levels

West Texas Intermediate crude rose in early European trading on Friday and headed for its first weekly advance in three after a larger-than-expected drop in US crude inventories and as upbeat data suggested US economic growth seemed sustainable. Recovering output in Libya, coupled with a possible increase in Iranian exports weighed on the market, and mostly on the Brent benchmark.

On the New York Mercantile Exchange, WTI crude for delivery in March rose by 0.36% to $94.44 per barrel by 8:20 GMT. Prices shifted in a daily range between days high and low of $94.47 and $94.06 per barrel. The US benchmark lost nearly 0.3% on Thursday but headed for its weekly advance in three weeks, up 1.7% so far. The contract lost 7.4% in the previous two five-day periods.

Meanwhile on the ICE, Brent futures for settlement in the same month rose by 0.1% to $105.86 per barrel by 8:21 GMT, after holding in a daily range between $105.87 and $105.44 a barrel. The European benchmark lost 0.5% on Thursday and was down 1.5% on weekly basis by Friday, pressured by prospects of increasing Iranian oil exports. Brents premium to its US counterpart narrowed to $11.41 per barrel yesterday, based on closing prices.

US crude continued to draw support by overall upbeat economic data, which brightened demand prospects in the worlds top oil consumer. The Labor Department reported on Thursday that the number of people who filed for initial jobless payments fell to 326 000 in the week ended January 11th, the lowest level since November. Analysts had expected applications for unemployment benefits to be 328 000, after they have been revised downwards to 328 000 from 330 000 in the previous week.

A separate report by the US Bureau of Labor Statistics revealed consumer prices rose by 0.3% in December, in line with analysts’ forecasts and after the index remained flat in the preceding month. On year-over-basis, CPI soared by 1.5% in December, the most since September. The index increased in line with analysts’ projections and was higher than November’s 1.3% increase.

Also fanning positive sentiment about the US economys recovery state, the Federal Reserve Bank of Philadelphia said that manufacturing activity in the region expanded in January. The Philadelphia Fed Manufacturing Index surged to 9.4, outstripping expectations for a jump to 8.6 from Decembers 6.4.

Another report showed on Wednesday that a gauge, which tracks manufacturing activity in the region of New York, soared to 12.1 in January, or the strongest level since May 2012, which was also more than three times larger than the initially projected reading. According to the median estimate of experts, the index should have increased to 3.5, following an upward revision to 2.22 in the previous month.

Bullish inventories

The oil market continued to draw support after the Energy Information Administration reported on Wednesday a larger-than-expected decline in US crude inventories in the week ended January 10th. US crude stockpiles fell by 7.66 million barrels to 350.2 million in the seven days through January 10th, the lowest level since March 2012. The drop sharply exceeded the median estimate of 11 analysts surveyed by Bloomberg for a moderate 1.3 million decline. This brought the decrease since November 22 to 41.2 million barrels, the largest seven-week decline on record.

Motor gasoline inventories rose by 6.18 million barrels to 233.1 million in the seven days to January 10th, exceeding analysts’ projections for a 2.5 million jump, and were in the middle of the average range for this time of the year. Distillate fuel supplies however fell by 1.02 million to 124 million barrels, defying expectations for a 1.25 million increase, and were below the lower limit of the average range.

Domestic crude production rose by 14 000 barrels per day to 8.16 million bpd, the most since 1988. This led to the fall in US crude imports. Inbound shipments slid to 6.9 million bpd last week, 1.1 million bpd, or 13%, less from a week earlier. The four-week average imports stood at 7.4 million barrels per day, 5.3% below the same period a year earlier.

OPEC output

The Organization of the Petroleum Exporting Countries, which accounts for 40% of global crude output, has reduced its production further and is currently pumping less than this years estimated demand for OPEC crude. The groups output fell by 20 000 barrels per day to 29.44 million in December amid losses from Libya, Iraq and Saudi Arabia. That is less than the average of 29.6 million OPEC had estimated will be required in 2014 and below its production target of 30 million bpd.

The oil market, and especially the Brent benchmark, continued to be under pressure on prospects of future increases in Iran’s oil exports. An interim deal that was struck in November last year might bring back as much as 1 million bpd of Iranian oil to the global scene as Western nations lift export sanctions in exchange for curbs in the Islamic republic’s nuclear program.

The preliminary agreement between Iran and the five permanent UN Security Council members and Germany goes into force on January 20th, Iran’s Foreign Ministry and the European Union announced on Sunday. Under the accord, the Persian Gulf nation’s crude exports must hold at 1 million bpd. A diplomatic source said on Monday that the counterparts will start talks on finalizing the settlement in February.

In Libya, operations at the recently reopened Sharara oilfield returned to normal as the government met protesters’ demands, a spokesman for the group said earlier in the week. The fields production level is close to its full capacity of 340 000 bpd, bringing nationwide output to over 600 000 bpd, almost triple the amount pumped in December.

However, the market is to remain supported amid persisting domestic tensions in the African country as eastern ports remain blocked by rebel groups demanding a share of Libyas oil revenues.