Crude oil futures weekly recap, August 25 – August 29

WTI and Brent futures clocked significant gains this week, as growing tensions in Ukraine before a three-day weekend in the US prompted risk-off bids. The economic outlook for the worlds top oil consuming economy also brightened, further supporting crude, before key data next week.

On the New York Mercantile Exchange, WTI crude for delivery in October added by 1.49% on Friday to settle at $95.96 a barrel, marking a 2.4% weekly gain. Prices ranged between a weekly high of $96.00 on Friday and a low of $93.05 hit on Monday.

Meanwhile on the ICE, Brent for settlement in the same month closed 0.71% lower on Friday to settle the week at $103.19, more than 0.9% lower. Prices ranged between $103.40 and $101.65. Brent’s premium to its US counterpart narrowed to $7.23.

“Economic numbers continue to point to a slowly improving economic picture, and it means better fuel demand,” Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said for Bloomberg. “The market kind of overextended itself when it slid to the seven-month low. We do have new concern surrounding the fighting going on in Ukraine.”

Ukraine

Speaking at a press conference, US President Barack Obama said it is clear that Russia is responsible for the conflict in eastern Ukraine, amid more reports and data of Russian involvement.

“There is no doubt that this is not a home-grown, indigenous uprising in eastern Ukraine,” he said. “The new images of Russian forces inside Ukraine make that plain for the world to see.”

Reports of dozens of Russian armored vehicles entering Ukraine yesterday added to pressure on Russia, after several other such cases recently and the capture of 10 Russian paratroopers by Ukrainian military inside Ukraine. Meanwhile, NATO released new satellite images, showing Russian self-propelled artillery in Ukraine.

For the first time in quite a while, Russian media have questioned the actions of the Kremlin and scrutinized its ambiguous and shady stance on the reports, reminding of the similar circumstances amid which Chechnya and Afghanistan have been invaded in the past by Russia and the USSR, respectively.

Russia has repeatedly denied accusations that it supports the rebels in any way. A growing number of Russian heavy weaponry, including the system used to bring down the civilian airliner in June, and so-called “volunteers”, in addition to Russian troops reported on numerous occasions as fighting alongside the rebels and mysterious burials of Russian soldiers, who officially died on “military exercises”, raise serious questions.

Investors, however, seem to disregard the quite real possibility of a direct military confrontation between Russia and Ukraine, and all the geopolitical and economical risks that it brings, focusing instead on supply and demand figures.

“Geopolitical risk premium in oil has deflated prematurely … but geopolitical tension has not disappeared and remains an upside risk for oil prices.” BNP Paribas analysts said in a note.

Economic data

“A pickup in economic activity in the U.S. is supporting prices,” Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said for Bloomberg. “Geopolitical concern is just giving a little bit of a lift.”

Preliminary figures on US GDP growth for the second quarter of 2014 were posted yesterday, to log the highest reading in almost four years at 4.2% growth on an annual basis, well above expectations. Meanwhile, jobless claims were little changed from a week ago, recording 298 000 new applications. Pending home sales also clocked a better-than-expected monthly growth.

“If U.S. economic activity continues to improve, that suggests that you’ll see stronger [domestic] fuel demand,” Gene McGillian, broker and analyst at Tradition Energy in Stamford, Connecticut, said for The Wall Street Journal.

Earlier, durable goods orders were logged for a mixed read. Overall, orders added 22.6%, the biggest monthly increase on record, as the figure was boosted by a surge in orders for commercial airplanes for Boeing last month. Core orders, which exclude volatile items such as airplanes, were logged down 0.8% on a monthly basis, paring much of the positive vibes from the overall figure.

In addition to brightening US demand outlooks, the positive data also strengthened the dollar, which reached a 13-month peak this week. Since oil, like many other commodities, is denominated mostly in dollars, a stronger greenback increases the price of oil to other currencies, lowering its investment appeal.

US oil supplies

The US Energy Information Administration (EIA) posted its weekly report on oil stocks on Wednesday, to show commercial crude supplies have dropped 2.1 million barrels in the week through August 22, beating estimates of a draw of 0.9m-1.9m barrels.

Supplies of crude at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, rose to 20.7 million barrels from 20.2m a week earlier, after reaching half of year-ago levels two weeks ago.

Gasoline stocks dropped 1 million barrels , while distillates, a category which includes diesel and heating oil, were up 1.3m.

Refineries operated at 93.5% of their operable capacity, with gasoline production gaining to close on 10m barrels per day, while distillate fuel output was little changed at ~5m barrels daily.

Domestic crude production was little changed at 8.6 million barrels per day, more than 1 million above year-ago levels. Meanwhile, imports of crude stood at 7.6 million bpd, 1 million down from year-ago levels.

Next week

Next week will feature a plethora of economic data. Two separate readings on Chinese manufacturing PMI and services PMI will be posted, as investors seek more cues as to the demand outlook in the worlds second-top oil consumer. Meanwhile in Europe, more factory and services PMI readings will be posted, in addition to retail sales and GDP. More importantly, the ECB will hold its monthly meeting to decide on interest rates, in a highly anticipated event as outlooks for a monetary intervention gain momentum. In the worlds top oil-consuming economy, the US, PMIs and crucial employment data will be released.