WTI futures extend losses on US inventories, economic data, easing tension in Ukraine

West Texas Intermediate crude fell for a third day on Thursday after government data showed US crude and distillate fuel inventories rose last week, although supplies at the nations biggest storage hub marked a fifth consecutive decline. Downbeat services sector activity and job creation in the US, coupled with receding fears of a military campaign in eastern Ukraine further pressured the oil market. Reduced output in Libya kept losses in check.

On the New York Mercantile Exchange, WTI crude for delivery in April fell by 0.17% to $101.19 per barrel by 7:54 GMT, holding in a daily range between $100.86 and $101.28 a barrel. The US benchmark fell by 1.8% on Wednesday and settled at a three-week low of $101.45. Prices surged by the most in three months on Monday, spiking to a 5-1/2-month high of $105.22.

Meanwhile on the ICE, Brent futures for settlement in the same month rose by 0.26% to $108.04 a barrel and varied between days high and low of $107.56 and $108.06 a barrel. The European benchmark crude fell 1.4% on Wednesday, following a 1.7% loss the previous day. Prices jumped by 2% on Monday and touched a 2-month high of $112.39 a barrel. Brent traded at a premium to its US counterpart of $6.85 after it widened to $6.31 on Wednesday from $5.97 on Tuesday, based on closing prices. This was its first gain in seven days.

The oil market, and mostly the US benchmark, was heavily pressured on Wednesday after the Energy Information Administration reported a seventh consecutive weekly gain in US crude inventories, while distillate supplies rose against expectations. Crude stockpiles jumped by 1.4 million barrels in the seven days through February 28th, underperforming analysts’ expectations for a 1.3-million gain, according to a Bloomberg News survey.

At the same time, refineries utilization rate slid by 0.6% to 87.4% from a week earlier, while domestic crude production jumped to 8.08 million barrels per day, remaining close to a the 25-year high of 8.16 million bpd which was registered in the week ended January 10th.

Losses were limited as stockpiles at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, registered a fifth straight weekly decline and fell to a two-year low of 32.1 million barrels from 34.8 million a week earlier. However, building up market sentiment that the southern leg of TransCanadas KeystoneXL pipeline is only transferring Cushings bottleneck to the Gulf Coast is worrying some market participants, as the pipeline has had no positive impact on overall crude reserves so far.

The EIA also reported that distillate fuel inventories, which include diesel and heating oil, unexpectedly rose by 1.4 million barrels, defying analysts’ expectations for a drop by 1 million. Total motor gasoline reserves slid by 1.6 million barrels, outperforming forecasts for a 1-million decline, but are above the upper half of the average range.

Victor Shum, a vice president at IHS Energy Insight, said for Bloomberg: “The market is reacting to the U.S. oil inventories. Crude had gone up quite a bit as a result of the situation in Ukraine earlier but right now, the market is adjusting. In the near term, some pullback is likely as long as we don’t see the Ukraine situation turning intense again.”

Also fanning negative sentiment, data from research company IIR showed that a total capacity of 1.608 million barrels of oil per day will be taken offline as refineries shut down for maintenance in the seven days to March 7, up from 1.412 million bpd in the preceding week.

Ukraine tension

Oil prices gave up their gains after spiking on Monday as fears eased that tension in the Crimea region could lead to a war. President Vladimir Putin recalled troops engaged in military drills near the Ukrainian border, saying he does not see any immediate necessity to invade eastern Ukraine.

The prospects of an all-out military campaign were further reduced on Wednesday after envoys began high-level talks in Paris, aimed to resolve the crisis peacefully. US Secretary of State John Kerry said that foreign ministers from Russia, Ukraine and Western nations agreed to continue negotiations in the coming days.

However, residual concern of a renewed escalation of the conflict kept a floor under prices, albeit a lower one.

US data

The oil market received additional pressure on Wednesday after payrolls processor ADP reported that private employers in the US added fewer jobs than expected in February, while the previous months reading was revised down. ADP Employment Change registered at 139 000, trailing analysts projections for a jump to 158 000. Januarys reading received a major downward revision to 127 000 from initially estimated at 175 000.

Meanwhile, as another toll of the tough winter weather in the US, a separate report showed that activity growth in the US service sector fell to a four-year low last month. The ISM Non-Manufacturing PMI plunged to 51.6, compared to analysts forecast for a moderate drop to 53.5 from 54.0 in January.

Thomas Simons, an economist at Jefferies LLC in New York, said, cited by Bloomberg: “The weather really affected a lot of the economic data throughout January and February. The employment readings are consistent with where we are in the labor market right now, which is an economy that would support better hiring if it wasn’t for the weather and will support better hiring once the weather gets better.”

Oil prices however drew some support as output in Libya remained close to 200 000 barrels per day after the western El Sharara oilfield remained closed by an ongoing protest and following discouraging comments by the fields manager that there is no sign of a reopening.

Also fanning positive sentiment, China’s Premier Li Keqiang said earlier in the week at the annual meeting of the National People’s Congress that the Asian economy’s growth target for 2014 remains unchanged from the previous year at 7.5%, while consumer inflation should be reined at about 3.5%.