Oil snaps five days of losses on China data, QE outlook in focus

West Texas Intermediate snapped a five-day losing streak, the longest since December, after China released overall positive economic data, which coupled with yesterdays surprisingly upbeat trade figures helped push oil higher. Gains however remained limited on speculation the Federal Reserve might scale back its bond purchasing program as early as next month, which would hurt dollar-denominated commodities. Brent also rose for the first time in six days.

On the New York Mercantile Exchange, WTI crude for September delivery traded at $104.05 per barrel at 7:06 GMT, up 0.62% on the day. Futures ranged between days high and low of $104.36 and $103.71 per barrel respectively. Light, sweet crude slipped 0.42% on Thursday, a fifth straight daily fall, but trimmed its weekly decline to 2.6% after todays gains.

Meanwhile on the ICE, Brent oil for delivery in September remained unchanged at $106.99 per barrel at 7:06 GMT. Prices held in range between days high and low of $107.20 and $106.70 a barrel respectively. The European benchmark fell 0.41% on Thursday and settled at the lowest level since July 4. This was a fifth consecutive daily slip, extending current weeks decline to 1.8% after advancing 1.7% the previous week.

WTI rose on Friday as overall positive economic data from China followed yesterdays upbeat trade figures and boosted sentiment that the worlds second top consumer is stabilizing its economic activity. Chinese retail sales rose by 13.2% in July, which was below forecasts for a 13.5% surge and last months 13.3% gain. Chinas consumer inflation remained steady with a 2.7% rise year-on-year, aligning with the previous months reading but underperforming expectations for a 2.8% rise. On a monthly basis, CPI met projections at a 0.1% increase.

Year-on-year, Chinas Producer Price Index (PPI) declined by 2.3%, above the anticipated 2.2% but outdoing the preceding periods 2.7% fall. However, Chinas industrial production surpassed analysts expectations for a 9.0% surge and rose by 9.7% in July, beating Junes 8.9% gain.

Yesterday, the Chinese General Administration of Customs reported the country’s exports rose by 5.1% in July after contracting 3.1% in June. Expectations for a 3% climb were exceeded. Meanwhile, imports also surpassed analysts’ projections for a 2.1% jump and surged 10.9% last month after a 0.7% decline in June. The Chinese trade surplus narrowed to $17.82 billion from $27.10 billion a month earlier and confounded economists’ forecasts for an increase to $27.20 billion. Crude oil imports hit a record 6.15 million barrels per day. The Asian nation is the second biggest oil consumer and accounted for 11% of global demand in 2012.

QE outlook

Despite the overall upbeat China data, oil prices remained under pressure and are poised to settle the week lower. According to a Bloomberg News survey of analysts and traders, the American benchmark will extend its fall throguh next week as market players expect the tapering of Feds monetary stimulus to begin as early as September.

Natalie Rampono, an ANZ analyst, said for Reuters: “The market is factoring in a September pullback in the Feds asset purchase programme. There could potentially be more profit-taking.”

This comes after several high ranking Fed officials, both supporters and critics of the Quantitative Easing program, said the stimulus could be tapered next month. Fed Bank of Chicago President Charles Evans, who was one of Quantitative Easing’s supporters, said on Tuesday that there has been a “good improvement” in the labor market and indicated the central bank’s monetary easing program might be decelerated in September. FOMC’s next meeting is scheduled for September 17-18 when policy makers will review their assessment on the economic recovery pace.

On Monday, Federal Reserve Bank of Dallas President Richard Fisher, one of Quantitative Easing’s critics, commented that the central bank is getting closer to tapering the monetary easing program. He said in a speech in Portland, Oregon: “Financial markets may have become too accustomed to what some have depicted as a Fed ‘put. Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets” and can lead to “serious misallocation of capital.”

Atlanta Fed President Dennis Lockhart made similar comments and Cleveland Fed President Sandra Pianalto said on Wednesday the central bank will consider reducing bond purchases if the labor market continues to improve. According to a Bloomberg survey of analysts last month, fifty percent of the 54 economists expect Fed to taper its Quantitative Easing program in September.