Oil eases ahead of API data, possible one-year high

Oil traded overall lower during early European trading amid growing concern over demand in the worlds second biggest consumer, China. However, losses remained limited as analysts expect a new weekly drop in U.S. crude oil inventories, which, if confirmed might boost, WTI to a new years high.

On the New York Mercantile Exchange, WTI crude for September delivery traded at $105.64 a barrel at 6:58 GMT, down 0.27% on the day. Prices held in range between days high and low of $106.24 and $105.49. Light, sweet crude settled higher on Monday, but is so far marking a 0.4% weekly decline.

Meanwhile on the ICE, Brent oil for September delivery plunged below $108, trading at $107.94 at 7:01 GMT, down 0.13% on the day. Prices ranged between days high and low of $108.21 and $107.69 per barrel respectively. The European benchmark has declined more than 1% so far this week as concern over demand in China arose following latest economic data that reinforced the slowdown bearish sentiment.

Oil was well supported recently by fundamentals, including shrinking reserves in the U.S., tension in Egypt and several oil producing countries and Fed backing off from tapering its monetary easing program. U.S. Crude Oil Inventories dropped by 20.2 million barrels to 373.9 million in the 14 days ending July 5, the biggest drop since more than 30 years. According to a Bloomberg survey ahead of EIAs report, crude reserves should have fallen by 1.88 million barrels last week, the lowest level since 5 months. Gasoline inventories probably dropped by 1.7 million barrels, while distillate fuel inventories are expected to have risen by 1.5 million barrels.

Ryoma Furumi, a commodity sales manager at Newedge in Tokyo, said for Reuters: “If the forecast is confirmed, we may see U.S. futures rise above $108 a barrel and touch a new high for the year. But without any other fundamental factors, broader macroeconomic data and numbers will influence oil for today.”

Later today, the industry-funded American Petroleum Institute will publish its separate oil reserves report, which however is referred to as less reliable as it is based on voluntary information from operators of refineries, pipelines and bulk terminals.

China data

Meanwhile, Brent remained pressured as overall negative sentiment for chinas economy weighed on demand prospects. The Asian Development Bank said on Tuesday that a cooling Chinese economy will suppress economic activity in the whole region.

Natalie Rampono, an analyst with ANZ in Melbourne, said for Reuters: “We expect Brent to underperform the U.S. benchmark because the latest Chinese numbers were weak and there are further downside risks to China. The U.S. contract will do better as pipeline bottlenecks get alleviated, improving crude flows and due to seasonal tightness.”

Yesterday data showed China’s economy grew by 7.5% in the second quarter, below last year’s 7.7% but met expectations. Although this was a ninth decline for the past ten quarters, this was a relief for investors, some of which expected even lower readings. On a quarterly basis, Chinese GDP rose by 1.7%, above Q1′s 1.6%, but failed to meet projections at 1.8%.

According to China’s National Bureau of Statistics, the Asian country’s industrial production in June failed to meet expectations for a 9.1% surge and stood at 8.9%, also below May’s 9.2% reading.

Meanwhile, political tension in Egypt still remains a pricing factor for oil as protesting supporters of ousted Islamist President Mohamed Mursi scuffled with drivers and passers-by in Cairo on Monday, forcing the police to intervene with tear gas.

Market players are now looking ahead at APIs report that is scheduled for today and statistics from the EIA, due on Wednesday. Ben Bernanke is due to testify to Congress on Wednesday and Thursday, which should bring further insight into the future of the central bank’s monetary stimulus.

Investors are also looking ahead into this week’s key U.S. economic data, which will provide information about the economy’s recovery pace. Consumer inflation (Consumer Price Index) and Industrial production are scheduled for release on Tuesday, while on Wednesday Building Permits and Housing starts will provide data about the U.S. construction sector. The Labor Department will release Initial Jobless Claims on Thursday. The number of people who have filed for unemployment payments is expected to have dropped by 20 000 to 340 000 after last week an unexpected surge to 360 000 supported Bernanke’s statement that the U.S. labor market is still fragile.