Crude oil weekly recap, June 16 – June 20

WTI futures made shy gains this week, while Brent recorded another sizable increase. The conflict in Iraq, OPECs second-top oil producer, supported crude throughout the week, bumping the European benchmark to multi-month highs. Elsewhere, the US posted key data this week, with more reports due in the next seven days.

West Texas Intermediate futures for settlement in August closed for $106.83 per barrel on Friday on the New York Mercantile Exchange, up 0.74% for the day and logging about 0.6% weekly gains. Weekly high and low stood at, respectively, $106.93 per barrel on Friday and $105.11 per barrel on Thursday. Last week the US benchmark gained 4%.

Meanwhile on the ICE in London, Brent futures due in August recorded a 0.22% daily drop to close for $114.81 per barrel on Friday, adding about 2% for the week. Brent’s premium to August WTI stood at $7.98, widening last week’s closing margin of $6.29. Weekly high and low were at, respectively, $115.71 per barrel on Thursday, also a nine-month high, and $112.16 per barrel on Tuesday. The European brand also added about 4% last week.

Iraq

Sunni militants, led by a group of extremists called ISIS (Islamic State in Iraq and the Levant), continued fighting security forces in many towns in the northern and western provinces of the country. Fighting was also reported at Iraq’s largest oil refinery at Baiji, which supplies 40% of Iraqi domestic fuel demand. Some 30 000 people, who work at the refinery had been evacuated earlier.

“The south of the country is not beyond the geographic reach of extremist groups seeking to undermine the government,” analysts at Barclays said in a note, cited by Bloomberg. “We believe that any significant uptick in unrest in the south, even if oil facilities were spared, would likely accelerate the exodus of foreign oil workers out the country.”

Authorities assured that the military were in control of the refinery, and that the militants were being pushed back. The government also insisted insurgents do not threaten Baghdad, nor the southern oilfields, which account for 90% of Iraqi oil output.

Iraq is OPEC’s second-top oil producer, and exports some 3 million barrels per day from its main southern terminal at Basra.

US reports

The US, which consume about 21% of all oil, posted key economic data this week. CPI for May was recorded at 2.1% annual growth and 0.4% month-on-month, while core CPI, which exclude food and energy, added 0.3% on a monthly basis and 2.0% year-on-year. CPI is a leading indicator for consumer spending, which generates about 80% of US GDP, and is the primary gauge used by the Fed for its monetary policy decisions.

US housing data was also released this week. The annualized rate of housing starts dropped 6.5% on a monthly basis in May and stand at 1.001 million, while building permits’ annualized rate declined by 6.4% on a monthly basis to 0.991 million. The real estate sector accounts for about 13% of US GDP.

Initial applications for unemployment benefits for the week ended June 14 were logged at 312 000, beating expectations and improving on the 317 000 for the previous week. Meanwhile, continuing claims for the week through June 7 were also better than expected at 2.561 million, which is the lowest reading since October 2007.

“The trend in initial claims is good,” Ryan Sweet, senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said for Bloomberg before the report. “The job market continues to heal.”

Previously, the US Energy Information Administration (EIA) posted its weekly oil inventories report for the seven day through June 13 yesterday. The log revealed a smaller-than-expected drop for crude supplies, which declined by 0.6 million barrels. Imports of crude had slightly increased after dropping 20% over the previous two weeks. Meanwhile, gasoline stockpiles grew, as the report logged a 10% increase in motors gasoline production.

FOMC meeting

The US Federal Open Market Committee (FOMC) announced key monetary policy decisions this week, after concluding its 2-day meeting on Wednesday. Interest rate was kept at 0.25%, while monthly assets purchases were trimmed by $10bn for the fifth straight time. Fed’s Chair Janet Yellen expressed the Committee’s views that rates are likely to stay low “for a considerable time”. Yellen emphasized on labor market weaknesses and “noisy data”, referring to improving CPI readings.

“All the evidence is that this is the weakest economic recovery on record, so she is going to tilt the committee in the direction of providing as much aid as possible for as long as it takes,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said for Bloomberg.

FOMC’s decisions have a significant impact on financial markets, as rates dictate short-term dollar valuation trends. Also, the US stimulus program, which buys assets worth tens of billions of dollars each month, has been a sizable support to the economy, and a cutback would mean less “easy” business. However, the cutbacks are implemented only as the economy recovers well enough.

Next week

Monday will open with a plethora of manufacturing PMIs. First off, HSBC will post Chinas preliminary manufacturing PMI for June. Analysts expect a figure of 49.7, which would be the sixth straight month of contraction for factory activities in the worlds second-top oil-consuming economy. Industrial profits will be reported on Friday, and the industrial sector accounts for nearly half of Chinese GDP.

Later on Monday, the Eurozone, which accounts for about 14% of total oil consumption, will also report preliminary PMIs for June. Both services and manufacturing in France are expected to contract, with readings just below the 50 mark. Germany is set for more expansive factory sector and slightly slower growing services sectors. The Bloc as a whole will be somewhere inbetween the two, with analysts forecasts of standings at 52.2 for factories and 53.3 for services. About 70% of EU GDP is from services, with industries adding about 27%.

The US will post more housing data next week, with both existing home sales and new home sales for May probably logging steady growth.

Consumer confidence in the Eurozone and in the US will be measured. The German Ifo institute will probably reveal steady sentiment for the EU for July, with expectations for a standing of 110.2, after 110.4 in June. Meanwhile, the Conference Board is set to unveil growing confidence in the US for July, with a forecast reading of 83.5, after 83.0 in June.

Later in the week, the US will post durable goods orders for May, with forecasts of more steady growth. More data on personal income and spending in the US, and Markits PMI readings are due, and will probably stand for robust improvement.