WTI futures hold above $101 on Ukraine tension, China data in focus

West Texas Intermediate crude held near Fridays three-week high close and is set for a quarterly advance as Russia and the West discuss how to defuse growing tension over the crisis in Ukraine, while supply outages from Nigeria and Libya further supported the market. Gains however were capped as Iraq started production at a new oilfield, while the latest data from China due on Tuesday may be in line with expectations for an economic slowdown.

On the New York Mercantile Exchange, WTI crude for delivery in May fell by 0.13% to $101.54 per barrel by 7:20 GMT, having shifted in a daily range between $101.69 and $101.34 per barrel. The contract jumped by 0.4% on Friday and closed the week 2.2% higher, set for quarterly advance.

Meanwhile on the ICE, Brent futures for delivery in the same month fell by 0.16% to $107.90 per barrel. Prices held in a range between days high and low of $108.10 and $107.78 per barrel. The European crude benchmark rose by 0.2% on Friday and settled the week 1.1% higher, trimming its quarterly decline, the first in three. Brent traded at a premium of $6.36 to its US counterpart, down from Fridays close at $6.40.

Oil prices remained underpinned after rising for a third day on Friday as US Secretary of State John Kerry and his Russian counterpart Sergei Lavrov held talks for four hours in Paris, seeking common diplomatic ground for an exit from the crisis that will best meet the Ukrainian peoples interests. Moscows military manoeuvres however kept the markets rattled, with Kerry saying that the diplomatic progress depended on Russia pulling back its 40 000 troops it has deployed near its western border to Ukraine.

On Wednesday, the US and the EU agreed to work on preparing possible tougher economic sanctions against Russia, including its energy sector, and also reduce Europe’s dependence on Russian energy exports. President Obama warned after a meeting with European leaders that Moscow’s isolation will deepen, if it continues its current course.

Obama said on Thursday in Rome that the US and its allies are closely studying Russia’s military, energy and finance sectors to determine which sanctions could have the most powerful impact, if a new round of penalties should be imposed. The US Senate and House of Representatives passed bills imposing additional sanctions on Russian officials with allegedly close ties to President Vladimir Putin.

Ample supply

The oil complex however was pressured on news that Iraq has began producing at the West Qurna-2 field, which should allow the country to lift its nationwide output to 4 million barrels per day by the end of the year, Iraqs oil minister said. The field should reach its full capacity of 1.2 million bpd throughout the year, starting with an initial production pace of 120 000 barrels per day.

Also dragging on prices, the Energy Information Administration said crude exports from the US, which are heavily limited by law, jumped in January to 245 000 bpd from 190 000 bpd in December, the highest level in 15 years. Meanwhile, output from the two largest shale formations in the US rose in February after contracting in the previous two months due to inclement weather.

China manufacturing, US data

Chinas manufacturing activity is expected to have contracted for a third month in March, according to a private report by HSBC and Markit Economics, while government data is expected to show minor expansion. Both reports are due early tomorrow.

Chinas National Bureau of Statistics is expected to report factory activity rose to 50.3 this month, up from 50.2 in February, while the HSBC Manufacturing Purchasing Managers Index likely remained flat at 48.1, signaling contraction for a third straight month.

However, recent upbeat data from the US showing the world’s biggest economy has recovered from an extraordinary harsh winter boosted demand outlook. Data by the Commerce Department showed that household spending, which accounts for 70% of the US economy, rose by 0.3% in February from a month earlier and matched analysts’ expectations. Personal income also rose by 0.3%, in line with expectations.

Real consumer purchases, after being adjust for inflation, jumped by 0.2% in February, the most since November, beating analysts’ projections for a 0.1% growth. Core Personal Consumption Expenditures gained 0.1%, matching forecasts and the previous period’s growth.

Earlier in the week, data showed that the US economy expanded at a 2.6% annualized rate in the final three months of 2013, slightly below analysts’ expectations of a 2.7% gain, but up from a preliminary estimate of 2.4%, a report by the the Bureau of Economic Analysis showed. The US gross domestic product grew by 4.1% in the third quarter.

Personal consumption expenditures rose 3.3% in the fourth quarter, the most since the final three months of 2010, exceeding analysts’ projections of a 2.8% increase and up from an initial estimate of 2.6%. Consumer spending is regarded a key economic indicator as it typically accounts for almost 70% of the US economic growth. Strong consumer spending on services, especially in the health care sector, helped boost the expansion.

The Commerce Department had also reported a surprisingly large jump in orders for durable goods in the US. Bookings for items meant to last more than three years rose by 2.2% in February, reflecting solid growth in demand for autos. Analysts had expected a moderate rebound to 1% growth from the preceding period’s downward revised 1.3% contraction. This comes after data by the Conference Board showed on Tuesday that US consumer confidence jumped to a six-year high in March.