U.S. crude inventories gain above projections, Syrian turmoil supports

Oil prices held their gains despite easing from multi-month highs after the Energy Information Administration reported in its weekly published data that U.S. crude oil reserves gained more than analysts expected in the week ending August 23. Gasoline and distillate fuel stockpiles however declined. Refineries operated at a higher rate and crude production rose to the highest since 1989. Concern over escalating Syrian unrest spilling over the entire Middle East region continued to underpin the market.

On the New York Mercantile Exchange, WTI crude for October delivery traded at $110.24 per barrel at 14:53 GMT, up 1.13% on the day. The American benchmark retreated from a 28-month high of $112.23 per barrel, which was hit during the day, while days low remained at $108.83. Futures surged more than 3% on Tuesday and settled at $109.01, the highest closing price February 24. The contract extended its weekly advance to over 3.6% after retreating 1.24% last week.

Meanwhile on the ICE, Brent oil for delivery in October stood at $115.87 a barrel at 14:53 GMT, marking a 1.32% daily advance. Futures retreated after hitting a 6-month high of $117.33 during Asian trading, while day’s low stood at $114.33 a barrel. The European benchmark jumped 3.8% on Tuesday and settled at $114.36, the highest since February 25. The contract extended its weekly advance to 4.3% after adding 2.6% in the preceding two five-day periods.

Oil prices eased off multi-month highs on Wednesday as a key technical indicator suggested that further short-term upward spikes might not be sustained. Brent’s relative strength index rose to overbought, above 70, for the first time since February. Adding to the downward pressure, the Energy Information Administration reported on Wednesday that U.S. crude oil inventories fell more than analysts expected last week.

According to the government agency, U.S. crude reserves rose by 3 million barrels in the week ending August 23 and remained in the upper limit of the average range for this time of the year. Refineries utilization rose to 91.3% from the preceding periods 91.0%. Both gasoline and distillate fuel production decreased last week, averaging 9.4 million and 4.9 million barrels per day respectively.

The EIA also reported that total U.S. gasoline stockpiles fell by 587 000 barrels last week and remained in the upper half of the average range, confounding analysts projections. Meanwhile, distillate fuel inventories also fell by 0.3 million barrels and were near the lower limit of the average range for this time of the year.

EIAs statistics underperformed market expectations. According to a Bloomberg survey of analysts, crude inventories were expected to have risen by 750 000 barrels last week, while gasoline stockpiles were supposed to have fallen by 1.38 million barrels.

The oil market continued to draw support as market players feared that the escalating tension in Syria might spill to neighboring oil producing countries and affect the entire Middle East region, which accounts for a third of global oil output. The seen by many as imminent U.S. military intervention in the Syrian civil war is likely to spread and spur volatile tension between the U.S. and its Western nation partners and the Syrian regimes main supporters, Russia, China and Iran.

Myrto Sokou, an analyst in London at Sucden Financial Ltd., said for Bloomberg: “The geopolitical risk in Syria continues to dominate the market. We expect the recent upside rally in the oil market to continue amid the potential for Middle Eastern supply disruptions.”

Also supportive for the oil market, Libya’s deputy oil minister said on Tuesday that the country’s largest western oilfields were closed when an armed group shut down the pipeline linking them to export terminals. According to data compiled by Reuters, Libya’s total output has fallen to an eight of its pre-civil war levels in 2011 of 1.6 million bpd, or 200 000 barrels per day.

ANZ analysts said in a note: “While the events in Syria have little impact on oil prices in isolation, the potential impacts flowing through to the rest of the region are high while sectarian violence continues in Iraq and supplies from Nigeria, Libya and Sudan continue to disappoint.”