WTI futures retreat from four-month highs on weak China data, EIA data in focus

West Texas Intermediate crude eased off four-month high levels after a preliminary private report showed manufacturing activity in China fell to the lowest in seven months, suggesting crude demand from the worlds second biggest consumer might soften. However, cold weather across the US draining the nations distillate fuel supplies and an expected third consecutive weekly decrease in stockpiles at Cushing, Oklahoma, kept losses in check. Geopolitical risks in Venezuela and Africa also provided some support.

On the New York Mercantile Exchange, WTI crude for delivery in April fell by 0.24% by 8:14 GMT to trade at $102.59 per barrel. Prices held in a range between days high and low of $103.00 and $102.45 per barrel respectively. The US benchmark rose to a four-month high of $103.29 on Wednesday and settled the day 0.7% higher. The contract is up 2.5% this week.

Meanwhile on the ICE, Brent futures for settlement in the same month retreated 0.39% to $110.04 per barrel and varied in a daily range between $109.78 and $110.40 a barrel. The European benchmark was mostly unchanged on Wednesday and settled at $110.47, the highest close this year. Brent traded at a premium to its US counterpart of $7.45 a barrel, down from Wednesdays close at $7.63.

Crude prices retreated after a preliminary private report showed that manufacturing activity in China, the worlds second biggest economy and oil consumer, fell to a seven-month low, marking a second month of contraction. The HSBC Flash China Manufacturing PMI slid to 48.3 in February, down from Januarys final reading of 49.5, underperforming expectations for a minor-to-no change from the previous month. The Flash China Manufacturing Output Index registered at 49.2, compared to 50.8 in January, also a seven-month low.

The downbeat reading comes after recent trade data and inflation numbers from China raised hope that analysts concerns for an economic slowdown might have been overdone. All of the PMI surveys sub-indexes marked a decrease from the previous period.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, commented on the report: “February’s flash reading of the HSBC China Manufacturing PMI moderated further as new orders and production contracted, reflecting the renewed destocking activities. The building-up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening. We believe Beijing policy makers should and can fine-tune policy to keep growth at a steady pace in the coming year.”

Ben Le Brun, a market analyst at OptionsXpress in Sydney, said, cited by CNBC: “That is going to really knock the wind out of sales of risk assets this afternoon and probably for the next 24 hours because it is a substantial miss on estimates. I expect that it is going to have a negative impact across oil markets.”

US inventories

Losses however were capped by expectations that a government report will show later today that US distillate fuel stockpiles fell for a sixth straight week as cold weather across the US, and mainly in the East and Northeast, stoked heating demand.

The industry-funded American Petroleum Institute reported on Wednesday that distillate inventories, which include heating oil and diesel, slid by 676 000 barrels last week, while crude supplies declined by 473 000 barrels. Motor gasoline inventories rose by 1.39 million, the trade association said.

APIs data however is considered as less popular than EIAs numbers as it is based on voluntary information from operators of pipelines, refineries and bulk terminals, while the government requires reports to be filed with the Energy Information Administration.

According to a weekly Bloomberg survey of 10 analysts before the report, the government agencys data is expected to show a decline of 2.1 million barrels in distillate stockpiles, while motor gasoline supplies are projected to have fallen by 850 000. US crude inventories likely rose by 2.25 million barrels. Market players also expected to see another withdrawal at Cushing, Oklahoma, after the API reported a 1.8-million decline last week.

Prices are also expected to remain supported in the next few weeks amid expectations that temperatures across the US will fall further in the short-term, bringing a cold start of March, according to Matt Rogers, the president of Commodities Weather Group LLC.

Persisting tension in Venezuela, South Sudan and Libya also kept crude prices underpinned, partially offsetting Chinas weak manufacturing numbers. Meanwhile, diplomatic progress between Iran and the five permanent members of the U.N. Security Council plus Germany raised prospects of the return of additional Iranian oil to the global markets. The two counterparts moved forward, agreeing on an agenda for reaching a final accord on curbing the Islamic republics nuclear program in exchange for lifting international sanctions, which have battered the Iranian economy.