Oil weekly recap, March 10 – March 14

Both West Texas Intermediate and Brent crude benchmarks rose on Friday, supported by an upward revised global demand growth forecast by the International Energy Agency and amid heightened tension ahead of Crimeas referendum on Sunday. Prices however settled the week lower, pressured by rising stockpiles and domestic output in the US hitting a new multi-decade high, while China showed further signs of economic slowdown. Supply shortages in Libya provided some support.

On the New York Mercantile Exchange, WTI crude for delivery in April rose by 0.7% on Friday to settle at $98.89 a barrel. Prices rose by 0.2% on Thursday but the contract settled the week 3.6% lower, a second straight weekly decline.

Meanwhile on the ICE, Brent futures for settlement in April, which expired on Friday, jumped by 1.1% to settle at $108.57 per barrel. The more active May contract rose by 1.21% to $108.21 per barrel and closed the week 0.4% lower after it varied in a wide daily range between a nearly one-month low of $106.75 and $108.50 per barrel.

Prices rose on Friday after the International Energy Agency raised its global demand growth estimate for this year, citing the recovering global economy. The higher consumption would also require more oil to be supplied by the Organization of the Petroleum Exporting Countries. According to the IEA, world use of oil will jump by 1.4 million barrels per day in 2014, or 1.5%, to a record 92.7 million bpd. Consumption of OPEC oil will average 29.7 million bpd this year, up by 100 000 bpd from the previous forecast.

Backing that prediction, the Organization of the Petroleum Exporting Countries raised its forecast for global demand growth in 2014 for a second consecutive month, contrasting with the Energy Information Administration’s forecast reduction on Tuesday.

The 12-member group said in its monthly report that global demand will jump by 1.14 million barrels per day this year, up 50 000 from its previous estimate, while also raising the forecast for global demand of crude pumped by it. The upward revision was based on projections for accelerating economic growth in the US and Europe, while a slowdown in emerging economies, especially China, was raising concerns and capping gains. Economists expect an upward revision to the US fourth-quarter GDP growth after services industry data suggested a stronger pace of consumer spending than previously expected.

Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said for Bloomberg: “The IEA is predicting higher demand and a stronger global economy and that’s supportive for the market. With the referendum in Crimea, nobody wants to be on the short side going home this weekend.”

In Ukraine, Russia continued to amass forces in the Crimea region on Friday ahead of Sundays referendum that would decide whether the peninsula will join Russia. Moscow gave no signs of listening to US and EU threats of sanctions, if it doesnt stand down. Pro-Russian leaders in Crimea made final preparations on Saturday for the referendum which is broadly expected to give Russia power over the region, despite threats from Western nations.

Russian troops began new military drills near the Ukrainian border on Thursday, cementing Moscows position on annexing Crimea after Sunday’s referendum. Meanwhile, the European Union stiffened its tone with German Chancellor Angela Merkel warning of a political and economical “catastrophe”, if Russia keeps its current geopolitical course.

John Kilduff, partner at Again Capital LLC in New York, said, cited by CNBC: “You have to leave yourself open to the possibility that war could break out here. You dont want to over react, but you have to calibrate because … if Russian oil sales were embargoed, it would rock the market.”

US inventories

The oil market, and particularly the US benchmark, was pressured throughout the week after the Energy Information Administration reported on Wednesday an eight consecutive weekly build in US crude oil inventories. Supplies rose by 6.18 million barrels in the seven days through March 7th, sharply exceeding a projected 2-million increase, and reached 370.0 million barrels, the highest since December 13th.

The build was partially attributed to a drop in refinery utilization rate as units were shut for spring maintenance. Refineries operated at a four-month low of 86.0% of their operable capacity, down 1.4% from a week earlier.

At the same time, domestic crude production jumped by 1.3% to 8.18 million barrels per day last week, the EIA said, the highest since July 1988.

Prices drew some support as inventories at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, fell by 1.3 million barrels to a two-year low of 30.8 million, marking a sixth straight weekly drop. Analysts however feared that the southern leg of TransCanada’s KeystoneXL pipeline, which began delivering crude from Cushing to the Gulf Coast in January, merely carried the bottleneck to Texas, having shown no effect on nationwide stockpiles levels so far.

Also weighing on the market, the US Energy Department announced a surprise plan to sell 5 million barrels of oil from its emergency stockpiles in order to test the nation’s distribution system. This would amount to less than 1% of the country’s reserves, the first release since August 1990, and was seen as a message toward Russia and its intentions of annexing Crimea.

US, China data

However, another set of positive economic readings from the US kept the American benchmark from scoring new monthly lows. The Labor Department reported on Thursday that the number of people who filed for initial unemployment benefits in the US during the week ended March 8th fell to 315 000, defying analysts’ projections. Economists had expected a jump to 330 000, while the preceding period’s reading was revised up by 1 000 to show 324 000.

A separate report by the Commerce Department showed that retail sales jumped by 0.3% in February, beating analysts’ forecasts for a 0.2% growth after January’s downward-revised 0.6% contraction. Nine out of thirteen major categories marked gains.

A surprising drop in consumer sentiment in the US pressured prices on Friday, but to a limited extent. The Thomson Reuters/University of Michigan preliminary index of sentiment slid to a four-month low of 79.9 in March, down from Februarys final reading of 81.6, confounding analysts expectations for a jump to 82.0. The survey showed that consumers were more pessimistic about the economy, suggesting household spending might accelerate slower than expected after the recent harsh winter weather.

Meanwhile, worse-than-anticipated readings from second-biggest oil consumer China continued to raise concerns over global demand prospects, pressuring down the markets. The National Bureau of Statistics reported that the Asian nation’s industrial production expanded by 8.6% in the January-February period, compared to a 9.7% growth during the same months a year earlier. Analysts had expected a minor slowdown to a 9.5%-expansion.

At the same time, retail sales rose by 11.8% year-on-year, also trailing expectations for a minor retreat to an expansion of 13.5%, compared to last year’s 13.6% growth.

This comes after China’s statistics agency reported on Saturday that the Asian nation’s exports surprisingly contracted by 18.1% in February on an annual basis, confounding analysts’ expectations for a 6.8% expansion following January’s 10.6% growth.