West Texas Intermediate fell on Thursday amid speculations that yesterdays surge to four-month high levels may have been overdone, but a positive global demand outlook for this year and 2015 kept losses in check. A second consecutive draw in supplies at benchmark delivery point Cushing and record high Chinese crude imports kept the market underpinned.
On the New York Mercantile Exchange, WTI crude for delivery in March fell by 0.62% to $99.75 per barrel by 7:46 GMT. Prices varied in a daily range between $99.63 and $100.36 per barrel. US crude rose to a four-month high of $101.38 yesterday and settled the day 0.4% higher at $100.37 a barrel, the highest close since October 18th.
Meanwhile on the ICE, Brent futures for settlement in April slid 0.21% to $108.12 a barrel and held in a daily range between $107.90 and $108.32 a barrel. The European benchmark added 0.2% yesterday but extended its weekly decline to 1.3% following Thursdays losses. Brents premium to its US counterpart fell below $8 yesterday, hitting the lowest level since October but it widened to $8.37 on Thursday.
US crude surged to a four-month high on Wednesday after the Energy Information Administration reported a fifth consecutive decline in US distillate fuel inventories, albeit smaller than projected, while supplies at Cushing dropped for a second week.
Distillate supplies, which include diesel and heating oil, fell by 0.73 million barrels to 113.1 million in the seven days through February 7th, trailing the median estimate of 10 analysts surveyed by Bloomberg for a 2.13-million drop, but remained well below the average range for this time of the year.
US crude inventories rose by 3.27 million barrels last week to 361.4 million, compared to expectations for 2.6-million increase. However, supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, plunged to 37.6 million barrels from 40.3 million a week earlier.
Motor gasoline inventories slid by 1.9 million barrels, the EIA said, outperforming expectations for a minor decrease of 100 000 barrels.
However, with the winter season drawing closer to an end, carrying moderation in temperatures with it, and as refiners prepare to enter into maintenance, crude demand is expected to soften in the upcoming months. Morever, WTIs 14-day Relative Strength Index neared overbought territory as it hit 65.7 yesterday, signalling the possibility of a correction to the downside.
Tony Nunan, a risk manager at Mitsubishi Corp in Tokyo said, cited by CNBC: “The cold weather in the United States, Asia and even Europe has boosted momentum recently, but I dont think prices can hold up once temperatures rise. This may be the beginning of a downward correction like the one we saw at the end of December and beginning of January when prices tanked.”
Global demand outlook
The oil market however will remain supported on outlook for steady growth in consumption. The Energy Information Administration raised its global demand growth forecast, while also trimming its projections for US crude output in the next two years. The government agency cut its domestic crude production forecast for 2014 by 100 000 barrels per day to 8.4 million and by another 100 000 bpd to 9.2 million in 2015.
Meanwhile, the EIA revised up its forecast for world demand growth by 50 000 bpd to 1.26 million bpd in 2014, reflecting the global economy’s recovery state.
EIA’s upward revision was backed by OPEC as the group also predicted a larger demand growth this year compared to its previous estimate. The Organization of the Petroleum Exporting Countries said in its monthly report that global demand will rise by 1.09 million barrels per day in 2014, 40 000 bpd above its previous estimate and sighted a possibility for further improvements.
The group expects contraction in European demand to ease in 2014, while preliminary data from the last two months signaled strong consumption levels in the US.
Some of that rising demand will be met as Russia, the worlds largest producer, expects nationwide output to jump to 10.54 million barrels per day, the countrys Deputy Energy Minister said on Wednesday. This would be the highest level since the Soviet Union was dissolved.
Some additional support was provided by renewed supply worries from Libya, holder of Africas biggest crude reserves, as protesters closed off pipelines from the Wafa oilfield and threatened to shut another one from the 340 000 bpd El Sharara field.
China
Surprisingly upbeat China trade data and crude imports hitting a record level also offered the oil complex support. Offsetting some previous week data points from the world’s second largest economy and oil consumer, China’s exports and imports exceeded sharply analysts’ estimates, confounding projections for a decline in both figures.
The Asian nation’s exports surged by 10.6% in January, beating expectations for a minor 2.0% increase from December’s 4.3% growth. Meanwhile, imports soared 10.0% last month, defying expectations for a drop to an expansion of 3% after scoring 8.3% in December. As a result, China’s trade surplus jumped to $31.86 billion, outperforming forecasts to narrow to $23.65 billion from December’s $25.60 billion.
Moreover, the Asian country’s crude imports hit a record in January, mainly due to the commissioning of the 300 000-bpd Sichuan refinery and the 280 000-bpd Fujian refinery, and the startup of a new petroleum reserve cite at Huangdao. China’s inbound shipments of crude jumped by 11.9% in January from a year earlier, reaching a record 6.63 million barrels per day, the nation’s customs agency reported.
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