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Oil extends losses for a fourth day

brentoilOil kept falling on Monday for a fourth straight day as concern over tension in Syria was offset by reduced demand outlook from China and the U.S. and stronger dollar kept weighing on prices.

On the New York Mercantile Exchange, WTI crude for August delivery traded 0.75% lower on the day, standing at $92.99 per barrel at 7:13 GMT. Light, sweet crude posted its worst weekly performance since April, dropping more than 4% during the week ending June 21. Prices ranged on Monday between days high and low at $93.87 and $92.74 per barrel respectively.

Meanwhile, Brent oil for August delivery lost 1.05% and dropped below $100 per barrel. The European benchmark traded at $99.86 at 7:14 GMT, ranging between days high and low at $100.76 and $99.83 respectively. Brent, like WTI, is on a fourth day falling streak and shed around 4.60% of its value last week.

Oil prices were heavily pressured by several factors recently, drawing support only by tension in Middle East, whose influence on the markets however eased. Meanwhile, increased crude oil inventories in the U.S., Feds statement on the Quantitative Easing program, Irans presidential elections and Chinas worst manufacturing data since nine months weighed on prices, erasing prior gains up to Wednesday.

Crude reserves gained

The Energy Information Administration’s weekly report showed on Wednesday that Crude Oil Inventories rose more than expected. Crude reserves rose by 0.313 million barrels as of the week ending June 14. This is above the average range for this time of the year. Gasoline inventories rose by 183 000 barrels, also above the average. Distillate fuel inventories dropped by 500 000 barrels, thus remaining below the average range. Refineries operated at 89.3% of their capacity.

Feds monetary stimulus to come to and end in 2014

The dollar regained its strength last week and erased most of its previous losses, thus pushing almost all commodity prices across the board down. The dollar index hit a two-week high and marked a 2.2% weekly gain as Ben Bernanke announced on Wednesday that the central bank won’t scale down its monetary easing program just yet, but that is highly possible to happen within the end of the year, provided the needed stable recovery signs. According to Bernanke, Fed’s moves are tied to what happens in the economy and the central bank has no fixed plan, sentiment points at reducing bond purchases. Bernanke said that if the economy continues to improve in line with Fed’s projections, it would be “appropriate to moderate the monthly pace of purchases later this year”, and end the program as the unemployment rate drops do 7%, which Fed expects to happen around mid-2014.

Michael McCarthy, chief market strategist at CMC Markets in Sydney said for Reuters: “Global money supply will be wound back and the level of investment in commodities like oil will be pulled back. In the long term the cessation of that huge stimulus is going to pressure commodity markets.”

The U.S. central bank is projecting the nations economy to expand by 2.3% to 2.6% in 2013 and the unemployment rate to shrink to between 6.5% and 6.8% by the end of 2014. These are key figures for future oil demand as the the U.S. is the biggest oil consumer in the world, accounting for more than 20% of global consumption.

China slowdown and recovery concern

Meanwhile, oil prices have kept been pressured by the worsening condition of Chinas manufacturing sector and the cash squeeze in the banking sector that is hindering expansion. Chinas HSBC PMI flash reading stood at 48.3, which, if confirmed, will be the lowest since September. It mismatced a 49.1 forecast by a Bloomberg News survey and is worse than May’s final value of 49.2. This comes after The World Bank reduced its forecast for the nation’s economic growth to 7.7%, down from 8.4%.

Chinas central bank announced last week the financial system needs a fine tuning and it might ease money lending amid the cash squeeze that has settled in. Premier Li Keqiang said the financial system needs to do a better job of supporting the economy. The government is expected to boost credit support for strategic industries and those that are labor-intensive.

Victor Shum, the vice president at IHS Energy Insight said for Bloomberg: “What prompted the fine-tuning comment was this liquidity crunch in China, which is bearish for crude. The geopolitics provide some support to oil while most economic factors point downwards.”

Earlier this month, the International Energy Agency lowered its 2013 oil demand growth forecast for China to 3.8 percent, down from 3.9 percent. All the negative economic data that is piling up is raising concern the Asian nations GDP growth forecast might be further trimmed.

Lee Chen Hoay, investment analyst at Singapore-based Phillip Futures said for Reuters: “Policymakers in China are unlikely to be injecting more stimulus into the economy at the moment as Beijing is looking to rebalance the economy from one of consumption as opposed to an economy reliant on exports. This is likely to have an impact on manufacturing activity and as such oil demand is likely to be slightly hit. A further downward revision of oil demand can be expected inside the second half of the year.”

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