WTI crude futures drop a fourth day on demand worries, Libyan supplies

West Texas Intermediate crude fell for a fourth day and Brent hovered near a five-month low as demand for petroleum products in the US slid to the lowest since June, while fears of economic slowdown in China added to global demand fears. The market was further pressured amid prospects for a jump in Libyan oil exports, but losses were capped by a drop in nationwide US crude inventories, while supplies at Cushing slid to a four-year low.

On the New York Mercantile Exchange, WTI crude for delivery in May fell by 0.37% to $99.25 per barrel by 6:59 GMT, having shifted in a narrow daily range between $99.48 and $99.17 per barrel. The contract slid by 0.12% on Wednesday, a third straight session of losses, and settled at $99.62 per barrel, the lowest since March 25th.

Meanwhile on the ICE, Brent futures for settlement in the same month were down 0.18% at $104.60 per barrel. Prices held in a daily range between $104.50 and $104.93 per barrel. The European crude benchmark lost 0.8% on Wednesday, having fallen to a five-month low of $103.95 per barrel, and settled at $104.79, the lowest since early November. Brent traded at a premium of $5.35 to its US counterpart after it closed at $5.17 on Wednesday, the narrowest since October 2nd.

Oil prices remained pinned down amid worries of softening demand in the worlds top two consumers. Government data showed early on Thursday that activity in Chinas services sector grew at a slower pace in March. The National Bureau of Statistics Chinese Non-Manufacturing Purchasing Managers Index slid to 54.5 from 55.0 in February.

Meanwhile, a separate private report by HSBC and Markit Economics showed that services activity grew at the fastest pace in four months, but composite data registered an overall slowdown in the economy as output at manufacturers fell.

The HSBC China Services PMI registered at 51.9, up from 51.0 in February. However, the HSBC Composite Output Index posted at 49.3 in March from 49.8 in February, a second month of contraction and the sharpest since November 2011.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented on the report: ““The HSBC China Services PMI suggests a modest improvement of business activities in March, with employment expanding at a faster pace. However, combined with the weaker manufacturing PMI reading, the underlying strength of the economy is softening, which should ultimately weigh on the labour market. Beijing should focus on leading indicators to launch fine-tuning measures that support growth.”

Government data showed early on Tuesday that manufacturing activity in China matched projections and inched up to 50.3 in March, up from 50.2 in February.

Meanwhile, a separate private report based on a smaller sample size showed that factory activity in China contracted for a third month. The HSBC China Manufacturing PMI fell to 48.0, compared to analysts’ expectations for a drop to 48.1 from February’s reading of 48.5.

The report showed that business conditions in China’s manufacturing sector worsened for a third straight month in March and market the worst performance since July. The contraction was attributed to a drop in new orders, although new business from abroad expanded for the first time in four months. Companies cut their headcount and purchasing activity and both input and output prices slid by the most since August 2012.

Economists had expected the Chinese government to introduce changes to its monetary policy soon in order to safeguard its economic growth target. Premier Li Keqiang announced yesterday that Beijing will sell $24 billion of bonds this year to fund building railways.

US inventories, demand

The market was also pressured after a gauge of consumption in the US slid to the lowest in ten months. The Energy Information Administration reported yesterday that US refineries supplied 18.2 million barrels a day of fuel in the week ended March 28, the lowest since June.

Further losses however were capped after the government agency announced on Wednesday an unexpected decline in US crude oil inventories, the first in eleven weeks. The report showed that US crude inventories fell by 2.38 million barrels to 380.1 million in the seven days through March 28th, defying the median forecast of seven analysts surveyed by Bloomberg for a 2.5-million jump.

However, support to the upside was limited as analysts attributed the decline to a backlog of deliveries through the Houston Ship Channel, which was closed due to an oil spill.

Supplies at Cushing, Oklahoma, the biggest US storage hub and delivery points for NYMEX-traded contracts, declined for a ninth straight week. Stockpiles slid by 1.2 million barrels to 27.3 million, the lowest in four years. US crude output jumped by 2 000 bpd to 8.19 million bpd.

Refineries operated at 87.7% of their operable capacity, up from 86.0% in the preceding period, outstripping analysts’ projections for a jump to 86.4%. Meanwhile, US crude imports slid by 786 000 barrels per day to 6.8 million bpd. Over the last four weeks, crude oil imports averaged about 7.3 million barrels per day, 6.1% below the same four-week period last year.

Both motor gasoline and distillate fuel production increased last week, averaging 9.0 million and 4.8 million barrels per day, respectively.

Total motor gasoline supplies fell by 1.6 million barrels last week to 215.6 million, compared to forecasts for a 2-million decline. Distillate fuel inventories, which include diesel and heating oil, rose by 0.55 million barrels to 113 million. Analysts had expected a 300 000-barrel drop.

Better-than-expected factory orders and an improvement in private sector job creation in March, according to payrolls processor ADP, also helped cushion prices.

Libya supplies

However, the oil market, and particularly the Brent crude benchmark, were heavily pressured after the announcement a rebel group might reach an agreement with the Libyan government to reopen vital eastern oil export terminals with a total capacity of 600 000 barrels per day, spurring hopes for an end to the standoff, which has crippled the nation’s oil output, its main source of revenue. A senior rebel leader told Reuters on Tuesday that the reopening could come through within days.

A government spokesman confirmed on Wednesday that an agreement could be reached within that time window. “Negotiations are still ongoing, but we expect an agreement to open the ports,” a spokesman for Prime Minister Abdullah al-Thinni said, cited by CNBC.

Currently Libya, holder of Africas biggest crude reserves, produces around 150 000 barrels per day, around a tenth of its 1.4-million-bpd output that was achieved last summer before nationwide protests and blockages began.

Also fueling supply fears, Iran and Russia drew closer to an oil-for-goods deal that could enable Iran to bypass sanctions by Western nations which limit its crude exports to around 1 million bpd. People familiar with the matter said for Reuters that the deal could be worth up to $20 billion.