WTI futures retreat on mixed China data, US economic improvement caps losses

West Texas Intermediate Crude retreated on Monday after closing at a two-week high the previous session as mixed data from China, the worlds second biggest consumer, spurred concerns over demand prospects. A strong dollar continued to weigh on prices, but signs of robust economic recovery in the US, the worlds top consumer, limited losses.

On the New York Mercantile Exchange, WTI crude for delivery in March fell by 0.75% to $93.91 per barrel by 8:44 GMT. Prices shifted in a range between days high and low of $94.38 and $93.78 respectively. The US benchmark rose by 0.5% on Friday after touching a two-week high of $95.07, and settled the week 1.6% higher.

Meanwhile on the ICE, Brent futures for settlement in the same month slid by 0.28% to $106.18 per barrel by 8:43 GMT. The contract varied in a narrow daily range between $106.13 and $106.49 per barrel. The European benchmark lost 0.5% on Thursday but trimmed its weekly decline on Friday, settling 1.2% lower. Brent’s premium to its US counterpart widened to $11.89 per barrel, up from $11.41 in the previous session, based on closing prices.

Oil prices were pressured on Monday after Chinas National Bureau of Statistics reported that output in factories, mines and utilities grew at a slower pace in December, fueling concerns over economic slowdown and demand for riskier assets. Chinas industrial production grew by 9.7% on an annual basis last month, trailing analysts expectations for a drop to 9.8% from Novembers 10% advance.

Meanwhile, Chinas economy grew by 1.8% in the fourth quarter, the government agency reported, underperforming projections that expansion would ease to 2.0% after posting at 2.2% in the three months through September.

Chinas economy grew by 7.7% in 2013, matching the median estimate of analysts surveyed by Bloomberg. This was also the same expansion rate as in 2012, which however was the slowest since 1999.

Data by the statistics agency also showed that retail sales grew slower than the previous month. Year-on-year, Chinas retail sales jumped by 13.6% in December, matching analysts expectations, but falling behind Novembers 13.7% rate of expansion.

Robin Mills, the head of consulting at Manaar Energy Consulting and Project Management in Dubai, commented, cited by Bloomberg: “China is the key. It’s very important to watch for any sign of weakness. I think demand there is much more sensitive than in the U.S. and Europe.”

Data by the US Commodity Futures Trading Commission showed that large speculators reduced their net long positions on WTI by 17 455 futures and options combined to 229 722 in the week ended January 14th, the lowest since November 26. Meanwhile, bullish bets held by money managers fell by 7 066, while wagers that prices will fall rose by 10 389.

US economic recovery

Data showed on Friday that US home construction slowed less than analysts had projected, while industrial output expanded for a fifth consecutive month. A decline in consumer sentiment however caught the markets off-guard and limited gains.

A report by the US Census Bureau revealed that the number of building permits issued in December retreated to 0.986 million, exceeding analysts’ expectations for a minor drop to 1.015 million from November’s 1.017 million. December’s reading however remained not far off September’s 5-year high of 1.034 million.

Meanwhile, the government agency also reported that housing starts fell to a 0.999 million annualized rate last month, retreating from November’s upward revised 1.107 million which was the strongest reading since November 2007. Last month’s decline however was less than analysts’ expectations for a drop to 0.990 million.

Also fanning positive sentiment for the state of the US economy, data by the Federal Reserve showed that industrial production in the world’s largest economy advanced for a fifth consecutive month in December. Output at factories, mines and utilities matched economists’ forecasts and advanced by 0.3%. November’s reading received a downward revision to 1.0% from initially estimated at 1.1%.

A worse-than-expected consumer sentiment in January however pressured the market on Friday, forcing it to retreat from session highs. January’s preliminary reading of the Thomson Reuters/University of Michigan consumer sentiment index registered at 80.4, defying analysts’ projections for an advance to 83.5 from December’s final reading of 82.5.

A strong dollar also weighed on prices. The US dollar index, which measures the greenbacks performance against a basket of six major currencies, fell by 0.11% to 81.270 by 8:30 GMT. Prices shifted in a daily range between 81.265 and and 81.430. The March contract rose by 0.4% on Friday, having hit a two-month high of 81.43. Strengthening of the greenback makes dollar-denominated raw materials costlier for foreign currency holders and reduces their appeal as an alternative investment.

Libya, Iran output

The oil market, and mostly the Brent benchmark, could come under pressure later this week amid prospects for rising crude exports from Libya, holder of Africas biggest crude reserves, and Iran.

The Libyan government said it plans to remove by force protesters blocking the countrys eastern oil export terminals. The three ports in question have been closed off by armed rebel groups since the summer and an eventual reopening could bring back online a combined capacity of 600 000 bpd, which would restore nationwide output close to its previous levels.

Also weighing on oil prices, Iran and six world powers are due on Monday to commence implementing Novembers groundbreaking deal to curb the Islamic republics nuclear program. According to the interim deal, the mutual concessions are scheduled to last six months, during which time a final agreement should be struck.

An alleged lift of tough sanctions against the Persian Gulf nation will bring back as much as 1 million bpd of Iranian oil to the global market, dragging on prices.