Crude oil weekly recap, May 26 – May 30

WTI and Brent futures closed the week for sizable losses, after the US, which consume more than 21% of all oil, recorded gains in supplies, pressuring crude contracts. However, gasoline demand seems to be picking up ahead of summer driving season, and the US economy has been quite supportive of oil outlooks, with US stocks recording all-time highs. Elsewhere, Ukraine is still gripped by a bloody conflict, but traders seem to shrug off the possibility of a sharp escalation. Next week is set for a plethora of economic data.

West Texas Intermediate futures for settlement in July closed for $102.71 per barrel on Friday on the New York Mercantile Exchange, down 0.84% for the day and 1.57% for the week. Weekly high and low stood at, respectively, $104.50 per barrel on Tuesday, which was the highest price in a month, and $102.40 per barrel on Friday.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.51% daily loss to close for $109.41 per barrel on Friday. The tally for the week is a 1.02% decline. Brent’s premium to WTI stood at $6.70, widening last week’s closing margin of $6.19. Weekly high and low were at, respectively, $110.80 per barrel on Tuesday and $109.22 per barrel on Friday.

“I don’t think we are getting the spurs we need from fundamentals to push oil higher,” said for Bloomberg Gene McGillian, analyst and broker at Tradition Energy in Stamford, Connecticut. “The market has a hard time attracting fresh buyers with U.S. inventories near record highs.”

US oil inventories report

The weekly Energy Information Administration report on oil inventories in the US for the week ended May 23 was released on Thursday. Commercial crude oil stockpiles had gained 1.657 million barrels to stand at 393 million barrels, after for the previous week stocks had declined by 7.226 million barrels. The private American Petroleum Institute (API) had suggested a 3.490 million gain, while a Bloomberg survey projected 500 000 barrel growth. A Reuters poll estimated a 700 000 barrel increase.

Domestic production added 38 000 barrels per day (bpd) to average 8.472 bpd, after last week output had gained a further 6 000 bpd. Meanwhile, imports added the massive 1.340 million bpd to average 7.809 bpd, after a sharp decline of 0.658 million bpd for the previous reading.

Inventories at Cushing, Oklahoma, the delivery point of the New York WTI contract, dropped to 21.7 million barrels, a decline of 1.5 million, after a further 200 000 draw for the previous reading, to log the lowest level since November 2008. Meanwhile, hubs at the Gulf Coast added 3.1 million for a figure of 213.1 million barrels, after dropping 5.7 million for the previous week.

“Inventories tell us we’re awash but the market wants to believe in demand,” said for Bloomberg Jonathan Barratt, chief investment officer at Ayers Alliance Securities in Sydney. “Every time oil moves lower it holds and that tells us the market wants to buy. We could be in for a sustained price increase.”

Motor gasoline inventories were reported at 211.6 million barrels, to log a drop of 1.8 million, after a near 1 million growth for the week through May 16. API had reported a 1.440 million decline for gasoline. Distillates were almost unchanged at 116.1 million barrels, after a 3.4 million growth last week, while API had projected a 0.8 million growth.

Refinery utilization rate was at 89.9%, adding 1.2% after a slight slowdown was recorded in the previous reading. Gasoline production in US refineries averaged 9.526 bpd, falling by 66 000 bpd, after last week a further 14 000 bpd drop was logged. Imports of gasoline decreased by 272 000 bpd to stand at 725 000 bpd, after a 120 000 growth was reported in the previous report. Distillates production was almost unchanged at 4.990 million bpd, after a 91 000 bpd gain last week, while imports added fell to 148 000 bpd, from 178 000 for the week ended May 16.

“Better gasoline demand bodes well for the U.S. economy,” said for Reuters Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo. “Overall, I see oil supported by geopolitical tensions and an improving demand outlook.”

US economic reports

This week the US, the world’s top oil consumer, accounting for more than 21% of total demand, released several economic reports. The readings boosted US stocks to all-time highs, with all three major indices, S&P 500, Nasdaq 100 and Dow 30 scoring record-breaking levels as trading for the week ended on Wall Street.

On Friday, consumer income and spending data was revealed. Personal income, which is a leading indicator for spending, for the month of April was reported to have increased 0.3% on a monthly basis, in line with forecasts, after a further 0.5% growth in March. Personal spending, which in turn is a leading indicator for consumer inflation, recorded a contraction of 0.1% since March, falling short of expected 0.2% growth, after adding 0.9% for the previous month.

Also on Friday, Chicago’s PMI for May was reported. The standing was put at 65.5, far exceeding expectations of 61.0, and improving on April’s 63.0. Any reading below the boundary of “50″ means contraction in activities, and anything above it means expansion. The bigger the distance from 50, the greater the pace of expansion or contraction.

Meanwhile, Michigan’s consumer sentiment for May was levelled at 81.9, after 81.8 for April.

Previously, the US released several other economic reports. The Bureau of Economic Analysis reported a contracting GDP for the first quarter, while jobless claims improved on expectations and previous standings. Pending home sales were also reported to improve, though slightly less than expected.

Earlier this week, durable goods orders scored better than expected, while consumer confidence and services PMI were much better than previous readings, significantly boosting sentiment for the US economy.

Ukraine crisis

This week Ukraine saw some of the fiercest fighting since the conflict began earlier this year. Yesterday rebels shot down a military helicopter, killing at least 12 Ukrainian soldiers, including a high-ranking general, who headed special-combat training for the newly created National Guard. On Monday, separatist fighters assaulted Donetsk airport, only to suffer more than 100 dead, according to the “Donetsk People’s Republic” press office.

The conflict seems to have been galvanized by the presidential election in Ukraine, which took place last Sunday, May 25. The winner, collecting 54% of the vote, is billionaire and former foreign minister Petro Poroshenko. He vowed to punish the rebels, and to have the “anti-terrorist operation over within hours, not months”. He has previously said that he would also never recognize Russia’s annexation of the Ukrainian Black Sea peninsula of Crimea. Mr Poroshenko will be inaugurated on June 7.

Next week

Next week will see quite a few indicators for major economies. Starting on Sunday, China, which accounts for 11% of world oil consumption, will post manufacturing PMI for May. Experts suggest a reading of 50.6 after a 50.4 figure for April, which would mean a slightly quicker expansion of factory activities.

On Monday the EU, consuming 14% of all oil, will report the final standings of manufacturing PMI as well. Germany and France are forecast to reaffirm the preliminary readings of 52.9 and 49.3, respectively. The Eurozone as a whole is projected to log 52.5, same as the preliminary reading.

Later on Monday, ISM will post its May manufacturing PMI report for the US. Analysts suggest an increase to 55.4, up from 54.9 for April. Factory employment will also be revealed by ISM, with forecasts of a standing of 55.7, adding on Aprils 54.7.

Tuesday will reveal HSBCs manufacturing PMI for China, unemployment rate in the EU and factory orders for the US.

On Wednesday a lot of data is due. The EU will report on services PMI, GDP and PPI, while the US will post services PMI and nonfarm employment.

On Thursday, HSBC will post services PMI for China, while the EU will reveal retail sales and a crucial ECB interest rate decision.

Friday will close the week with reports of industrial production in Germany, and key data on payrolls in the US.