Oil eases off multi-month highs as U.S. stockpiles rise, Syria tension supports

Both WTI and Brent benchmarks retreated from yesterdays multi-month highs as the Energy Information Administration reported that U.S. crude stockpiles gained for the first time in August last week. Possible U.S. intervention in the Syrian civil war continued to underpin the market as investors awaited the outcome of the U.N. probe in the areas of the chemical attack and the resolution of the United Nations Security Council.

On the New York Mercantile Exchange, West Texas Intermediate October futures fell by 1.04% to $108.96 per barrel at 7:08 GMT. Prices ranged between days high and low of $109.72 and $108.81 per barrel respectively. The American benchmark slipped 0.3% on Wednesday, trimming its weekly advance to 2.4% after falling 1.4% the preceding week.

Meanwhile on the ICE, Brent oil for delivery in October traded at $115.47 per barrel at 7:05 GMT, marking a 0.98% daily decline. Futures held in a days range between $109.72 and $108.81. The European benchmark rose 0.8% on Wednesday but cut its weekly advance to 3.9% following Thursdays losses.

Oil prices retreated after the release of EIAs report on Wednesday but the market continued to be underpinned as investors await the outcome of the U.N. inspection in the Syrian areas where allegedly chemical weapons were used against civilians.

On Wednesday, the Energy Information Administration reported U.S. crude reserves rose by 3 million barrels in the week ending August 23, the first gain this month, 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 period’s 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 316 000 barrels, compared with a projection for a 550 000 barrels increase, and were near the lower limit of the average range for this time of the year.

EIA’s 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.

Brent may continue to fall as key technical indicator suggested that further short-term upward spikes might not be sustained. Brent’s relative strength index remained above 70, overbought, for a third day after reaching these levels for the first time since February.

Jonathan Barratt, the chief executive officer of Barratt’s Bulletin in Sydney, said for Bloomberg: “Once you deflate the Middle Eastern tension and get back to economics, they suggest that oil should be sub-$100. Take this as a bump but the fundamentals at play still say anything over these levels for oil is expensive.”

Syrian turmoil

A possible U.S. intervention in the Syrian civil war continued to support the oil market as an imminent spill of the conflict over the entire Middle East region will disrupt global supply as the area accounted for 35% of global output in the first quarter of the year.

According to a U.S. official, President Barack Obama and his allies are working to define the objectives of a military strike against Syria. It wont be limited to a one-day operation but Obama said on Wednesday that a “tailored, limited” strike, unlike the unpopular Iraq war, might be enough to send a message that the use of chemical weaponry will not be tolerated. Obama made clear that any military intervention will be limited to avoid dragging the U.S. in another war in the Middle East. Adding to the built up pressure, the U.S. and Great Britain said they are prepared to launch a military attack without being authorized by the U.N. security council.

Also supportive for the oil market, Libya’s Prime Minister Ali Zeidan said on Wednesday that the country’s output has fallen to 250 000 barrels per day from 2011 pre-war levels of 1.6 million bpd.

Market players will be keeping a close eye on this week’s upcoming U.S. economic data to further gauge oils demand prospects and the possibility of Fed tapering its monetary stimulus in September. On Thursday, the U.S. Preliminary Revised GDP is likely to have grown by 2.2%, while consumer spending and core consumer spending (Personal Consumption Expenditures) probably surged by 1.8% and 0.8% in the second quarter respectively. Initial Jobless Claims probably fell by 1 000 in the week ending August 24. On Friday, Personal Income and Spending are expected to have advanced in July but at a slower pace than in June. Core PCE on monthly and annual basis likely rose in July and the Chicago PMI and Final University of Michigan Confidence are projected to have advanced in August as well.