WTI futures hover near 1-month low after API inventories report, demand fears

West Texas Intermediate crude fell for a third day, the longest losing stretch in two months, after a private report showed US crude oil inventories rose more than expected in the seven days through March 7th, while a government report is expected to show a similar gain. Demand concerns emanating from China further pressured prices, which however found support by the unfolding crisis in Ukraine, coupled with supply fears from Libya.

On the New York Mercantile Exchange, WTI crude for delivery in April traded at $99.30 per barrel at 7:46 GMT, down 0.73% on the day. Prices fell to a one-month low of $99.18, while days high stood at $99.60. The US benchmark fell by 1.1% on Tuesday, a third straight daily drop, and settled at $100.03, the lowest close since February 11th.

Meanwhile on the ICE, Brent futures for settlement in the same month stood at $108.12, down 0.40% on the day, having shifted in a daily range between $107.98 and $108.47 a barrel. The European crude benchmark added 0.43% on Tuesday to settle at $108.55 a barrel. Brent traded at a premium to its US counterpart of $8.82 after it rose to $8.52 on Tuesday from $6.96 on Monday, based on closing prices.

US crude dropped and widened its discount to the European benchmark after the industry-funded American Petroleum Institute reported an eight consecutive weekly gain in US crude inventories, which spurred demand concerns. The trade association said that crude supplies increased by 2.63 million barrels in the week ended March 7th to 367 million. Supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, slid for a sixth week, marking a drop of 1.31 million barrels.

The report also showed that motor gasoline stockpiles decreased by 2.2 million barrels, while distillate fuel stockpiles, which include diesel and heating oil, dropped by 839 000 barrels. Refinery crude runs eased by 24 000 barrels per day as units were shut for maintenance, partially accounting for the build in crude stocks.

APIs data however is considered as less popular than the figures by the Energy Departments Energy Information Administration. The trade association relies on voluntary information from operators of refineries, pipelines and bulk terminals, while the government requires reports to be filed with the EIA.

According to a weekly Bloomberg News survey of 10 analysts ahead of the government data, nationwide crude inventories are expected to have expanded by 2 million barrels. Meanwhile, motor gasoline and distillate fuel stockpiles are both projected to have declined, by 2 million and 450 000 barrels, respectively.

Analysts at Phillip Futures said in a note, cited by CNBC: “Going forward, we expect gasoline stockpiles to decline further while distillate supplies to accumulate as winter fades. WTI prices may be subjected to short-term downward correction during summer in April, as the rise in gasoline demand is unlikely to match the fall in heating fuels given that the prevailing harsh winter in the US is one of the worst in history.”

Additional pressure

The American benchmark crude marked its first weekly decline in eight last week as downbeat data from China spurred fears the Asian economy might miss Premier Li Keqiangs economic growth target of 7.5%, which he set last week. Moreover, this was the lowest aim since 1990. China is the worlds second biggest oil consumer, trailing only the US, and will account for 11% of global consumption this year, according to the IEA.

China’s National Bureau of Statistics reported on Saturday that the Asian nation’s exports surprisingly contracted by 18.1% in February on an annual basis, confounding analysts’ expectations for a 6.8% expansion following January’s 10.6% growth.

Meanwhile, China’s imports rose by 10.1% in February, an inch above January’s 10% expansion and beating projections for an 8.0% jump. This led to the Asian economy’s first trade deficit since March 2013 and largest such since February 2012.

Poor consumer inflation data and a slowdown in manufacturing activity to an eight-month low in February also added to the sentiment that China might not be able to reach Premier Li Keqiang’s 7.5% growth target for 2014.

Market players are now awaiting the release of key data points from China, due on Thursday, to assess where the Chinese economy is headed and gauge demand prospects.

Ukraine, Libya

Prices however found a floor as escalating tension in Ukraine continued to spur supply fears. The Ukrainian government called out on Tuesday for help from Western nations to stop Russia from annexing Crimea, but the region seemed on a path on formalizing rule from Moscow within days. Ukraine says Moscow has deployed as many as 19 000 troops on the peninsula.

Russias Foreign Ministry said on Tuesday that the financial support Ukraine seeks from the US would violate American law which prohibits any aid to regimes which took power with force. However, State Department spokesman Jen Psaki said yesterday, cited by Bloomberg, that the US does not concur that ousting Viktor Yanukovych was a coup. Meanwhile, the European Union will discuss harsher sanctions against Russias actions on March 17th.

Oil prices also drew support after the Libyan parliament deposed Prime Minister Ali Zeidan due to his inability to regain control of the countrys oil production, its main source of revenue. The vote came after rebels humiliated the government after a tanker loaded crude oil at a rebel-held export terminal and fled from Libyas navy.

Libyas ex-prime minister had threatened on Saturday to bomb a North Korean-flagged tanker, if it attempted to load oil from a rebel-controlled port.

Nationwide output remained at a fraction of its capacity as the 340 000-bpd El Sharara oilfield remained blocked by protesters. Libya’s defence minister held talks last week with the people blocking it, but there was no news whether it will reopen soon.