Crude oil futures set for weekly decline on Libya deal, Russia tensions

Both West Texas Intermediate and Brent crude benchmarks rose on Friday but are set to close the week lower on prospects for a rise in Libyan oil exports after rebels blocking shipments from the countrys eastern ports said they have reached a principle agreement with the government to reopen the terminals. Simmering tension between Russia and the West however kept the markets underpinned. Investors also eyed the upcoming key employment data from the US to gauge how the worlds biggest economy and oil consumer fared.

On the New York Mercantile Exchange, WTI crude for delivery in May rose by 0.20% to $100.49 by 6:50 GMT, having shifted in a daily range between $100.28 and $100.57 per barrel. The US benchmark rose by 0.7% on Thursday to settle at $100.29 a barrel but is set for its biggest weekly decline in three.

Meanwhile on the ICE, Brent futures for delivery in the same month stood at $106.34 per barrel, up 0.18% on the day. Prices held in a range between days high and low of $106.43 and $106.10 per barrel. The European crude benchmark rose by 1.3% on Thursday to $106.15 a barrel, but is on track to post its poorest weekly performance since early January. Brents premium to its US counterpart widened to $5.85, after settling at $5.86 on Thursday, up from $5.17 on Wednesday, which was the narrowest since October 2nd.

Oil prices drew support amid simmering tensions between Russia and the West. Moscow has almost doubled its gas price for Ukraine this week after a second hike on Thursday, pressuring the Ukrainian economy, which will rely on Western financial help to avoid bankruptcy.

However, a possible resumption of exports from vital eastern ports in Libya kept the market pressured and set for weekly losses. Rebels, who have blocked the terminals since last summer, said they agreed in principle with the government to allow a resumption, which could bring up back online a capacity of 600 000 bpd, compared to the countrys current output of around 150 000 bpd. Libya, holder of Africas biggest crude reserves, produced an average of 1.4 million bpd before protests and blockages began last summer.

However, uncertainty of whether the deal will come through limited movement to the downside. This is not the first time when rebels have said the shipments will resume and the government hasnt confirmed the agreement in principle yet.

Ric Spooner, chief analyst at CMC Markets in Sydney, said for CNBC: “Its quite a sensitive development for the market because of its immediate impact. Depending on how its resolved, we might see Libyas production going up quite soon or not. It creates a difficult situation for traders to respond to.”

Market players however refrained from entering big positions ahead of the all-important non-farm payrolls and unemployment rate in the US. Employers are expected to have created 200 000 jobs last month, up from 175 000 in February, while the unemployment rate likely fell to 6.6% from 6.7%

Data yesterday showed a larger than expected jump in the number of people who filed for initial unemployment benefits in the week ended March 23rd. Meanwhile, the US trade deficit widened to $42.3 billion in February, defying expectations to narrow to $38.5 billion from $39.095 in January as exports fell to a five-month low, suggesting first-quarter growth could trail expectations.

Demand

The market was also pressured after a gauge of consumption in the US slid to the lowest in ten months. The Energy Information Administration reported yesterday that US refineries supplied 18.2 million barrels a day of fuel in the week ended March 28, the lowest since June.

Further losses however were capped after the government agency announced on Wednesday an unexpected decline in US crude oil inventories, the first in eleven weeks. The report showed that US crude inventories fell by 2.38 million barrels to 380.1 million in the seven days through March 28th, defying the median forecast of seven analysts surveyed by Bloomberg for a 2.5-million jump.

However, support to the upside was limited as analysts attributed the decline to a backlog of deliveries through the Houston Ship Channel, which was closed due to an oil spill.

Worries over softening demand in China also pressured the market. Government data showed early on Thursday that activity in China’s services sector grew at a slower pace in March. The National Bureau of Statistics’ Chinese Non-Manufacturing Purchasing Managers’ Index slid to 54.5 from 55.0 in February.

Meanwhile, a separate private report by HSBC and Markit Economics showed that services activity grew at the fastest pace in four months, but composite data registered an overall slowdown in the economy as output at manufacturers fell.

The HSBC China Services PMI registered at 51.9, up from 51.0 in February. However, the HSBC Composite Output Index posted at 49.3 in March from 49.8 in February, a second month of contraction and the sharpest since November 2011.

On Tuesday, the HSBC China Manufacturing PMI fell to 48.0, compared to analysts’ expectations for a drop to 48.1 from February’s reading of 48.5.

The report showed that business conditions in China’s manufacturing sector worsened for a third straight month in March and market the worst performance since July. The contraction was attributed to a drop in new orders, although new business from abroad expanded for the first time in four months. Companies cut their headcount and purchasing activity and both input and output prices slid by the most since August 2012.