WTI futures hover near 6-week lows on bearish US inventories, strong dollar

West Texas Intermediate crude hovered near Wednesdays six-week low after data by the Energy Information Administration showed a larger-than-expected build in US fuel supplies, offsetting a sixth consecutive decline in crude inventories. Ongoing supply worries in Libya continued to underpin the oil complex, but a stronger dollar weighed on prices. Upcoming US employment data fell in focus.

On the New York Mercantile Exchange, WTI crude for delivery in February traded at $92.71 per barrel at 8:15 GMT, up 0.41% on the day. Prices shifted in a daily range between $92.84 and $92.48 per barrel. The US benchmark fell to $92.27 on Wednesday and settled the day at $92.33, the lowest close since November 27. Prices are down 1.6% on weekly basis.

Meanwhile on the ICE, Brent futures for settlement in the same month added 0.31% to trade at $107.48 a barrel at 8:16 GMT. The contract shifted between days low and session high of $107.30 and $107.66 per barrel respectively. Prices slid by 0.1% on Wednesday but extended their weekly advance to 0.6% on Thursday.

US crude remained pressured after the Energy Information Administration reported a much larger-than-expected build in refined products inventories. Motor gasoline inventories rose by 6.24 million barrels in the week ended January 3rd to 227 million, exceeding more than two times the median estimate of 10 analysts surveyed by Bloomberg for a 2.5 million increase. Distillate fuel supplies, including diesel and heating oil, jumped by 5.83 million barrels to 125 million, sharply exceeding projections for a 2.25 million build.

Total demand for refined products fell by 782 000 barrels per day to 18.2 million, the lowest level since June 9.

US crude oil inventories fell by 2.68 million barrels to 357.9 million last week, a sixth consecutive weekly decline, and were near the upper limit of the average range for this time of the year. The reading came in line with analysts’ expectations for a draw of 2.75 million barrels. The drop in crude stocks however couldnt offset the build in refined products as analysts saw it as s deliberate withdrawal to reduce taxes at year-end.

Mark Keenan, the head of commodities research for Asia at Societe Generale SA in Singapore, said, cited by Bloomberg: “Demand has dropped. The big crude draw-downs we saw in December were unlikely to be a true representation of actual demand, it was more the inventory management. So the expectation of large builds as we move into this year is there.”

Inventories at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, rose to 40.7 million tons, up from 39.6 million a week earlier.

Refineries operated at 92.3% of their operable capacity, bringing utilization down by 0.1% from the preceding week. Gasoline production increased in the seven days to January 3rd, while distillate fuel production decreased, averaging 9.1 and 5.1 million barrels per day respectively.

Stronger dollar

A stronger dollar also weighed on oil prices, boosted by FOMCs December meeting minutes and expectations for upbeat employment data to be released this week. The US dollar index, which measures the greenbacks performance against a basket of six major counterparts, traded at 81.13 at 7:54 GMT, down 0.10% on the day. The March contract rose to a seven-week high of 81.33 on Wednesday and is up 0.1% on weekly basis following the preceding weeks 0.7% advance. Strengthening of the greenback makes dollar-denominated commodities pricier for foreign currency holders and limits their appeal as an alternative investment.

The dollar drew support after the latest Fed minutes showed policy makers saw declining economic gains from the central banks quantitative easing program.

“A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue,” the record of the FOMC’s December 17-18 meeting showed.

Fed Chairman Ben Bernanke said on December 18 that the Fed will continue to probably do a measured reduction in the pace of purchases at each meeting. According to a Bloomberg News survey of economists conducted on December 19, policy makers will cut Feds stimulus in $10 billion increments over the next seven committee meetings.

Market players are awaiting the release of last weeks initial jobless claims and Fridays jobs report. Applications for initial unemployment aid in the week ended January 4th are projected to have declined by 4 000 to 335 000. On Friday, the Labor Department is expected to report that Decembers non-farm payrolls stood firm at 193 000, albeit slightly retreating from Novembers 203 000, while the unemployment rate remained at Novembers five-year low of 7.0%.

Libyan supply concerns

The oil market, and mostly the Brent benchmark, continued to draw support by supply uncertainties in Libya, holder of Africas biggest crude reserves. Libyan officials said on Wednesday that the government will stop doing business with and will sue any foreign firms that purchase oil from eastern export terminals under the control of armed autonomy groups.

This comes after a heavily armed autonomy group in eastern Libya invited on Tuesday foreign companies to buy oil from export terminals they previously seized, challenging the central government to use force to stop them.

In an escalation of tension in the African country, the navy opened fire on Monday as a Malta-flagged vessel attempted to approach the rebel-held Es Sider export terminal, threatening it against loading oil from units not under the control of the state-run National Oil Corp.

Supply concerns continued to persist despite a recent partial recovery in nationwide exports. Oil Minister Abdelbari Arusi told Reuters yesterday that the country is currently producing 650 000 barrels per day, of which 510 000 bpd is being exported. Output almost tripled after creeping at little over 200 000 bpd in December following a rare negotiation success for Prime Minister Ali Zeidan to reopen the western El Sharara oilfield.