WTI falls for a third day on QE outlook, geopolitical unrest supports

West Texas Intermediate fell for a third straight day on Wednesday as investors remained cautious ahead of the release of FOMCs July meeting minutes later today. Market players also awaited EIAs weekly crude oil inventories report at 14:30 GMT, which is expected to show inventories have fallen last week. Persisting geopolitical risks in Egypt and Libya continued to underpin the market. Brent fell as well.

On the New York Mercantile Exchange, West Texas Intermediate for October delivery fell to $104.67 per barrel at 6:48 GMT, down 0.42% on the day. Prices ranged between days high of $105.35 and low at $104.58, the weakest level since August 9. Futures settled at $105.11 on Tuesday, the lowest since August 8, extending current weeks decline to 2.8%.

Meanwhile on the ICE, Brent futures for delivery in October dipped 0.42% to $109.63 per barrel at 6:47 GMT. Prices held in range between days high and low of $110.19 and $109.57 per barrel respectively. The European benchmark rose 0.45% on Tuesday but extended its current weeks decline to 0.9%.

Oil prices remained pressured amid expectations that Wednesdays Fed minutes from FOMCs July meeting might indicate that the central bank will begin tapering its $85 billion bond purchasing program in September. Meanwhile, central bankers and policy makers are meeting tomorrow at Jackson Hole, Wyoming, to discuss monetary policy. Dollar-denominated commodities have largely been tracking shifting expectations for an earlier-than-expected deceleration of the central bank’s bond purchases, which have been pushing up commodities prices.

David Lennox, a resource analyst at Fat Prophets in Sydney, said for Bloomberg: “There is some squaring of positions with Jackson Hole coming up and the EIA numbers coming out. The trend at the start of the driving season was very strong, and that’s why WTI prices reacted the way they did, but we’re at the back-end of it now.”

Support

Meanwhile, the oil market was underpinned by ongoing social unrest in Egypt and Libya. Around 900 people and 100 security personnel have been killed since last week amid ongoing clashes between protesting supporters of army-deposed Islamist President Mohamed Mursi and the Egyptian security forces, which ousted the democratically elected Mursi.

Although Egypt is not an oil producer, investors are worried that the conflict might spread into neighboring oil producing countries. At the same time, speculations that the clashes could disrupt oil flows and shipments through the Suez Canal and Suez-Mediterranean pipeline have also been building a premium.

Carl Larry, president of Houston-based consultancy Oil Outlooks and Opinions, said for Reuters: “Egypt is on the boil, and if this thing spins out of control youll have alarm bells going off among other producers in the region about a potential domino effect. Egypt is not a major oil producer but it is home to one of the most important shipping routes for commodities. If things go bad, who will ensure the security of the Suez Canal.”

Meanwhile, Libyas oil output remained suppressed amid protests at key terminals. The country holds Africas biggest crude reserves. Libya prepared to open some oil ports, while the head of the countrys Petroleum Facilities Guard said that striking workers at an oil port had fired and injured a civilian.

Inventores

The industry-funded American Petroleum Institute released its separate crude reserves report yesterday. According to API, crude stockpiles fell by 1.2 million barrels last week. Gasoline and distillate fuel inventories also declined by 3.7 million and 1.8 million barrels respectively. APIs data however is considered as less reliable than EIAs statistics as it is based on voluntary information from operators of bulk terminals, pipelines and refineries.

The Energy Information Administration will publish its weekly crude reserves reported later today. According to a Bloomberg News survey, oil inventories are expected to have fallen by 1.5 million barrels in the week ending August 16, the lowest since September 2012. Gasoline stockpiles probably decreased by 1.5 million barrels, while distillate fuel inventories added 1 million barrels. Refinery utilization is projected to have fallen by 0.5% from last week’s 89.4%, the first rate below 90% since June 14.

Apart from Wednesday’s Fed minutes, market players will also be looking ahead at the upcoming U.S. data to gauge the strength of the U.S. economy. On Wednesday, Julys Existing Home Sales are expected to have risen to 5.13 million, up from June’s 5.08 million. On Thursday, last week’s Initial Jobless Claims likely rose by 10 000 to 330 000, while the Markit Flash U.S. Manufacturing PMI for August is projected to have advanced to 54.0 from July’s 53.7. On Friday, July’s New Home Sales are expected to have declined to 0.490 million houses sold, down from 0.497 million in the preceding month.

Investors also eyed upcoming China manufacturing data on Thursday to further gauge oil’s demand prospects. Signs for an increase or decline in the Asian country’s economic activity cause strong fluctuations in oil pricing as the country is the second biggest consumer and accounted for 11% of global consumption in 2012.

The Chinese HSBC Manufacturing PMI, prepared by HSBC Holdings Plc and Markit Economics, is expected to have surged to 48.3 in August from a 47.7 reading in July. Flash figures are released approximately six business days prior to the end of the month. The final reading, as well as the government statistics, will be released on September 1. Monthly Report on China’s Non-manufacturing Purchasing Managers Index is due at September 3.