WTI futures pare monthly gain on US weather outlook, domestic production

West Texas Intermediate crude fell for a second day on Friday and is set for marking its first weekly decline in seven amid speculations demand will soften as frigid winter weather eases in the US, while domestic output surged to the highest in 25 years in 2013. Civil unrest in Ukraine continued to curb the appetite for riskier assets, while also spurring fears for lower demand. Better-than-expected durable goods orders in the US provided some support.

On the New York Mercantile Exchange, WTI crude for delivery in April fell by 0.27% to $102.12 per barrel by 7:58 GMT and shifted in a daily range between $101.87 and $102.22 a barrel. The US benchmark lost 0.2% on Thursday and is down 0.1% on weekly basis, which would be its first decline in seven weeks. Prices however are up 4.6% this month.

Meanwhile on the ICE, Brent futures for settlement in the same month traded at $108.87 per barrel, down 0.08% on the day. Prices ranged between days high and low of $108.72 and $109.01 per barrel respectively. The European benchmark lost 0.5% on Thursday and is set to close the week 1% lower, the poorest performance in four weeks. The contract is up 2% this month. Brents premium to its US counterpart narrowed to $6.56 a barrel on Thursday from $6.93 on Wednesday, based on closing prices.

Oil prices retreated amid speculations demand in the worlds biggest consumer will ease as the winter season draws closer to an end, removing a key support factor, and as refineries shut down for maintenance. Distillate fuel supplies, which include diesel and heating oil, rose for the first time in seven weeks in the seven days through February 21st, data by the EIA showed on Wednesday, putting WTI on track to post its first weekly decline in seven.

Also weighing on the market, but on the supply side, the Energy Information Administration reported on Thursday that domestic crude production rose to the highest in 25 years in 2013. The shale oil boom led to the increase in domestic output by nearly 1 million barrels per day, the biggest annual increase on record, to an average of 7.46 million bpd, the most since 1989.

Meanwhile, the government agency also said that the softening demand helped increase global spare oil production capacity, the output which producers worldwide can bring online without major investments. That amount rose to 2.1 million barrels per day in January and February, 100 000 bpd higher than during the preceding two months.

Jonathan Barratt, the chief executive officer of Barratt’s Bulletin in Sydney, said, cited by Bloomberg: “The demand situation is weak. Oil has been up at these levels because of weather events. The draws that we have been seeing have been seasonal.”

The oil complex drew some support as production from the Organization of the Petroleum Exporting Countries fell to the lowest in more than 2-1/2 years as Saudi Arabias production pace decreased, while renewed protests cut Libyas output to little over 200 000 barrels per day. According to data compiled by Bloomberg, the group pumped an average of 29.877 million barrels of oil in February, down from 29.888 million bpd in January, the lowest since June 2011.

Those supply fears however were offset by expectations for rising Iranian exports as diplomatic progress between the Persian Gulf nation and six world powers loosened the grip of tough sanctions that had battered its economy. China, Japan, India and South Korea purchased an average 1.25 million barrels of Iranian oil per day in January, 22% higher from a year earlier.

A fourth straight week of withdrawals at the biggest US storage hub however kept US crude underpinned, shrinking its discount to Brent. Supplies at Cushing, Oklahoma, the delivery point for NYMEX-traded contracts, fell to 34.8 million barrels in the seven days through February 21st from 35.9 million in the previous week. Stockpiles declined by 7 million barrels in the last four weeks to the lowest since mid-October as TransCanada commissioned the southern leg of its KeystoneXL pipeline, which began carrying oil from Cushing to Texas, easing a bottleneck. The line is supposed to reach its full 700 000-bpd capacity throughout the year, its operator said.

Market players also eyed the upcoming economic data from the US later in the day after better-than-expected durable goods numbers released on Thursday fanned some positive sentiment following resent downbeat numbers, which however were largely attributed to the cold weather. The Commerce Department is expected to report that the US economy grew by 2.5% in the fourth quarter from a year earlier, while the Thomson Reuters/University of Michigan consumer sentiment index is expected to have inched up to 81.3 in February from 81.2 in January.