WTI futures rise on global demand outlook, US inventories data in focus

Both West Texas Intermediate and Brent benchmarks edged higher on Wednesday amid prospects for rising global consumption this year due to accelerating economic growth in the industrialized countries. Analysts forecasts for a second consecutive drop in US distillate fuel stockpiles ahead of a government report also supported the oil market. A private report by the industry-funded American Petroleum Institute will be released today at 21:30 GMT.

On the New York Mercantile Exchange, WTI crude for settlement in March rose by 0.47% to $95.42 per barrel by 10:03 GMT. Prices shifted in a daily range between a 2-1/2-week high of $95.71 and $95.12 a barrel. The US benchmark rose on Tuesday and is up 1.3% on weekly basis.

Meanwhile on the ICE, Brent futures for delivery in the same month traded at $107.23 per barrel at 10:05 GMT, up 0.47% on the day. Prices range between days high and low of $107.40 and $106.78 a barrel and are up 0.9% on weekly basis. Brent was at a premium of $11.76 to its US counterpart, based on latest closing prices.

The oil market drew support after the International Energy Agency reported on Tuesday that accelerating global economic growth will absorb additional crude supply, even as the US shale oil boom drives domestic output to record high levels and US imports decline. Global consumption will rise by 1.3 million barrels, or 1.4%, to a record 92.5 million in 2014, the Paris-based agency predicted. This was a 90 000-bpd upward revision from Decembers forecast, following the first annual demand expansion in developed nations since 2010, with the US being the largest driver of growth.

Also on Tuesday, the International Monetary Fund raised its global economic expansion forecast for the first time in almost two years as growth in developed countries, such as the US and UK, accelerates. The IMF urged advanced economies to extend their accommodative policies in order to sustain economic recovery so that they could pick up the mantle of growth from emerging markets.

The global economy will expand by 3.7% in 2014, up from previously estimated at 3.6% in October, the report showed. US GPD will expand by 2.8%, compared with 2.6% predicted in October, Japan will gain 1.7% versus 1.2% and the United Kingdom will grow by 2.4%, up 0.5% from the previous projection. China, the worlds second-biggest economy and number-two oil consumer, will expand by 7.5%, faster than Octobers 7.3% forecast, but trailing last years 7.7% growth.

Michael McCarthy, chief strategist at CMC Markets in Sydney commented, cited by Bloomberg: “Improvement in global industrial production will translate to higher energy demand. Technical factors and better demand outlook are likely to keep oil prices supported.”

US inventories

Oil prices also received a lift amid forecasts for a further decline in US distillate stockpiles ahead of a government report. The Energy Information Administration is expected to report a decline of 500 000 barrels to 123.45 million in distillate fuel inventories in the week ended January 17th, according to the median estimate of nine analysts surveyed by Bloomberg. This would be 17% below the five-year average for the respective week.

Motor gasoline inventories are projected to have gained 1.5 million barrels last week, while crude oil stockpiles likely rose by 1.7 million. If confirmed, this would be the first gain in US crude supplies in eight weeks. The report is coming out a day later due to the Martin Luther King Jr. holiday on Monday.

The industry-funded American Petroleum Institute will release its separate private data later today, providing with preliminary numbers ahead of the government report. APIs data however is deemed less popular than EIAs statistics, as it is based on voluntary information from operators of pipelines, refineries and bulk terminals, while the government requires reports to be filed with the Energy Information Administration.

Iran deal

Pressuring down the oil market to some extent, Iran complied with international requirements and fulfilled its initial commitments according to the nuclear deal that was struck last November. The United States and the European Union followed through on their side of the accord and both suspended some trade and other restrictions against the Persian Gulf nation.

The US will allow Iran’s six current oil buyers to maintain their purchases at the same pace during the next six months, while the interim nuclear deal between the Islamic republic and six world powers is in force and the two sides work their way toward a permanent solution. A US official said Iran is currently exporting only 40% of what it was shipping two years ago before tough sanctions against the OPEC member were applied.

However, broad market expectations point to no imminent return of additional Iranian oil to the global markets, which allowed short-term geopolitical factors to have a stronger influence on prices. Fears of further supply outages from South Sudan and Libya supported the oil complex. Ongoing civil unrest in Syria, which continues to threaten to spill the conflict over neighboring major oil producers also added to the geopolitical premium.