Oil futures rise as Libyan ports remain closed, FOMC meeting in focus

Oil prices rose on Monday with Brent adding 1% after the Libyan government failed to reach an agreement with tribal leaders during the weekend on reopening three of the countrys export terminals, leaving a 600 000 bpd capacity offline. Gains however remained in check as investors remained wary ahead of FOMCs two-day meeting starting tomorrow. A recent series of upbeat economic data from the US raised bets for tapering taking part in December, instead of the first quarter of 2014. Also weighing on prices, a preliminary private report showed manufacturing activity in China fell to a three-month low despite remaining in the expansion zone, suggesting vulnerability to a slowdown.

On the New York Mercantile Exchange, WTI crude for delivery in February rose by 0.45% to $97.37 per barrel by 10:28 GMT. Prices shifted in a days range between $97.40 and $96.53 per barrel. The US benchmark fell by nearly 1% on Friday and settled the week 1.3% lower.

Meanwhile on the ICE, Brent futures for settlement in the same month jumped by 1.01% to $109.31 per barrel by 10:29 GMT. Prices held in a daily range between session high and low of $109.49 and $108.54 per barrel. The European benchmark rose by 0.2% on Friday but settled the week 2.6% lower. Brent’s premium to its US counterpart was at $12.35 on Friday, up from $11.06 in the previous day.

Prices received a lift on Monday after ongoing disruptions in Libya, holder of Africas biggest crude reserves, continued to raise concerns over global supply. The Brent benchmark fell on Friday amid expectations that the government will strike an agreement with local tribes during the weekend on reopening three export terminals that would raise exports by 600 000 bpd.

Ibrahim Al Jedran, a Libyan rebel leader, said yesterday that the ports of Es Sider, Ras Lanuf and Zueitina will remain closed after the official government rejected his demands to share oil revenue with his self-proclaimed government. Jerdan had signaled that the eastern region known as Cyrenaica may sell crude without approval, if his terms were not met, leaving Libyas current nationwide exports at 110 000 bpd from five ports under government control. Output amounted to 210 000 barrels per day last month, down from 1.55 million bpd in 2010.

Ken Hasegawa, a commodity sales manager at Newedge Japan, said, cited by CNBC: “Libya didnt manage to reach an agreement to restart oil exports even though the government had said it expected the blockade to end. Thats a support factor for oil, particularly Brent.”

Fed stimulus outlook

Gains however remained limited as market players were cautious ahead of FOMCs two-day meeting starting tomorrow. Despite the government shutdown in October and some mixed numbers afterwards, economists raised bets on Fed cutting its bond purchases in December after upbeat data over the past 2 weeks suggested the US economy fared well and its recovery seemed sustainable.

On Thursday, the Commerce Department reported that retail sales rose solidly in November as Americans purchased automobiles and a range of other goods. Retail sales rose by 0.7% last month, beating analysts’ projections for a 0.6% gain, while October’s reading received an upward revision to 0.6% from initially estimated at 0.4%. The upbeat general indicator was lifted by a 1.8% jump in sales at auto and parts dealers, which offset a 1.1% decline in fuel prices.

The upbeat sales added to the steadily building-up positive sentiment for the US economic recovery, buoyed by a larger-than-expected third quarter growth and unemployment hitting the lowest level in 5 years.

The Federal Reserve may begin to scale back its $85 billion in monthly asset purchases at the committee’s policy meeting on December 17th-18th rather than wait until January or March, according to 34% of economists who participated in a Bloomberg survey on December 6th. In November’s survey, 17% of respondents projected a tapering in December.

“Markets were initially expecting tapering to be announced in March 2014 but with increased prospects of an earlier tapering, markets will continue to be jittery as we lead up to the end of the Dec. 17-18 Federal Open Market Committee meeting,” analysts at Phillip Futures said, cited by CNBC.

Meanwhile, according to the majority of participants in a weekly Bloomberg survey, WTI will decline through December 20. Sixteen out of 31 analysts and traders wagered that prices will drop as demand for fuel in the worlds top consumer seemed to linger.

The Energy Information Administration reported last Wednesday that total motor gasoline inventories rose by 6.7 million barrels in the seven days to December 6, sharply exceeding the median estimate of analysts surveyed by Bloomberg News for a 2.0 million increase. Meanwhile, distillate fuel inventories jumped by 4.5 million barrels last week to 118.1 million, surpassing anticipations for a moderate 1.18 million increase. This was the biggest gain in both the product groups since January 4.

Stockpiles at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts, jumped by 625 000 barrels to 41.2 million, the highest since July 26. Domestic crude production surged to 8.08 million barrels per day, the highest since 1988.

China manufacturing

Also fanning negative sentiment for global demand, a private survey showed manufacturing growth in China slowed to a three-month low as output expansion eased, while employment fell. The sector remained in the expansion zone for a fifth consecutive month. The HSBC Flash China Manufacturing PMI fell to 50.5 in December, down from Novembers final reading of 50.8 and defying analysts projections for an increase to 51.0. Meanwhile, the Flash China Manufacturing Output Index fell to a two-month low of 51.8, down from 52.2 in the previous month.

Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, commented on the report, cited by Bloomberg: “The reading confirms our view that Chinese GDP growth is already decelerating.” He predicted the Chinese economy will expand by 7.2% in 2014, down from 7.7% in 2013.