Oil lower on ahead of EIA report, supply disruptions support

Oil prices dipped on Wednesday as the American Petroleum Institute reported a drop in crude oil inventories below 1 million barrels, while gasoline and distillate fuel stockpiles rose. Meanwhile, expectations for a positive reading of the Euro zones preliminary GDP growth in the second quarter, coupled with persisting supply disruptions in Libya and Iraq , supported oil.

On the New York Mercantile Exchange, WTI crude for September delivery traded at $106.61 per barrel at 7:20 GMT, down 0.21% on the day. Prices ranged between days high and low of $106.69 and $106.20 a barrel respectively. Light, sweet crude rose 0.20% on Tuesday but trimmed its weekly advance to 0.4% so far after falling 0.64% the preceding week.

Meanwhile on the ICE, Brent crude for delivery in October fell to $108.21 per barrel at 7:21 GMT, down 0.25% on the day. Prices ranged between days high and low of $108.29 and $107.77 a barrel respectively. The European benchmark rose 0.27% on Tuesday but remained on negative territory on a weekly basis.

Reserves data

Oil prices were pressured on Wednesday ahead of the Energy Information Administrations weekly crude oil inventories report. A separate industry report by the American Petroleum Institute showed that crude reserves dropped by 999 000 barrels in the week ending August 9. Meanwhile, gasoline and distillate fuel stockpiles rose from the preceding week by 1.7 million and 1.1 million barrels respectively.

APIs report however is considered as less reliable than EIAs statistics, which will be published at 14:30 GMT on Wednesday. According to a Bloomberg survey ahead of the release, crude oil inventories are expected to have fallen by 1.5 million barrels last week. Gasoline reserves probably dropped by 1.6 million barrels, while distillate fuel stockpiles likely rose by 1 million barrels.

Victor Shum, a vice president at IHS Energy Insight, a consultant in Singapore, said for Bloomberg: “The market has overheated and we’re seeing some pullback. As we move out of the peak demand season, the markets may be headed for a correction.”

Support

Oil drew support amid expectations that data will show today the Euro zones economy has expanded in the second quarter, thus boosting demand. Meanwhile, persisting concern over supply disruptions in North Africa and the Middle East continued to underpin the market.

The Euro zones Advance Gross Domestic Product is expected to have expanded by 0.2% in the second quarter, compared to a downward revised contraction of 0.3% in the months January-March. Year-on-year, the single currency blocs growth is projected to have declined 0.8%, outperforming the preceding periods 1.1% contraction.

Libyas state National Oil Corp said on Tuesday that due to the ongoing protests it cant provide September loading schedules. The country is currently pumping around 650 000 barrels per day, down from 800 000 bpd in July, which already was a cut by half.

Meanwhile, maintenance works at Iraqs key southern oil export terminal is expected to cut supplies by 500 000 barrels per day in September.

Jim Ritterbusch, president of Chicago-based Ritterbusch & Associates, said for Reuters: “With the supply issues, and looking at the macroeconomic picture, it does look a little better now, even Europe is surprising on the upside. But the market is still oversupplied and we dont quite yet have demand at the kind of levels needed to draw down the overhang.”

Meanwhile, market players remain cautious ahead of this week’s key U.S. economic data, which should provide information about the future of Quantitative Easing. Retail Sales rose for a fourth consecutive month yesterday, marking a 0.2% advance in July. On Wednesday, producer prices (Producer Price Index) will likely show a slower advance than the preceding period both year-on-year and month-on-month. Thursday’s consumer inflation (CPI) should have advanced by 0.2% compared to June and 2.0% from a year earlier. Industrial Production is expected to have surged 0.3%, marking the same advance as in June. Both of Friday’s Building Permits and Housing Starts are projected to have advanced last month.

Upbeat U.S. economic data supports oil prices in the short-term on the demand side, but also supports Feds intentions to taper its Quantitative Easing program by the end of the year. Dollar-denominated commodities have largely been tracking shifting expectations of an earlier-than-expected tapering of Fed’s monetary easing program, on which the strength of the dollar depends.

“Expect to see a lot of volatility over the next few weeks, because investors are paring back and holding out in anticipation not just of U.S. economic data this week, but also of the Fed meeting on September 17. Right now the market is not trading on fundamentals, most of the price action we are seeing is primarily speculative, based on assumptions,” Jim Ritterbusch said.